French SICAV Proxy Active Investors is crying foul over the high handed dismissal of its proposal to separate the chair and CEO roles at Société Générale.

On April 7th 2010, PhiTrust, the managers of Proxy Active, and a group of international institutional shareholders filed a resolution requesting a statue change to split the roles. Although the shareholders were comfortably above the 0.50% minimum ownership threshold - 1.30% in total - on April 20th the company went public with a press release stating that the board considered the resolution proposal to be inadmissible. This left the investors relying on press commentary to find out what had happened to their proposal as the company did not respond to the shareholders in advance of the press release.

The company's defence is that it considers the choice to separating top roles to fall within their exclusive purview, based on article L.225-51-1 of the French Commercial Code. Proxy Active and associates argue that a 'reasonable legal stance on the matter' grants the AGM power to overrule the board.

Article L.225-51-1 of the French Commercial Code states that “under the conditions defined by the articles of association” it is the board’s choice whether to split the role of Chairman and CEO. Furthermore, article L.225-51-1, is made flexible and was drafted  to allow by-laws to determine the splitting of power. Thus, argues PhiTrust, the article does not grant the Board sole power to decide on such matters oversight being left to the AGM.

The SocGen board structure is interesting: rather than a Chairman of the Board, it has a installed a Vice-Chairman. Under French law, such a role falls short in PhiTrust's view, providing neither board leadership nor CEO oversight. If the board’s decision is upheld, shareholders are left with only one course of action contends Proxy Active: to request the dismissal of both Chair/ CEO Frédéric Oudéa and  Vice-Chairman Anthony Wyand.

PhiTrust has now issued a statement encouraging the board to reconsider its position: "As investors we regret SocGen’s decision and its dismissal of a fundamental shareholder right: that to submit a resolution to be debated during the AGM. SocGen needs the help of all of its shareholders to weather the current banking crisis and last year management change should have been a good timing for strengthening the ties between the shareholders and the board. Unfortunately, once again the company’s board refuses to dialogue with its shareholders fearing that our resolution would undercut their standing if brought to the General Meeting."

In addition to citing French company law, the company said that it decided to unite the roles of chairman and CEO inMay 2009 on the basis that "such governance structure is better suited to respond to the challenges of the economic crisis".

At the time of writing, the investors do not rule out taking legals steps to enforce their ownership rights.

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