In a new paper, I offer a comprehensive, empirically grounded reflection on the evolving architecture of corporate governance in Europe, with a particular emphasis on the Italian regulatory and market experience. My focus is on whether tenure voting rights, which give increased voting power to long-term shareholders, can effectively mitigate short-termism in capital markets while preserving (or reshaping) shareholder democracy and control distribution. Tenure voting (also called loyalty shares) has emerged in several EU jurisdictions – especially in Italy – as an attempt to reward stable, long-term shareholding with enhanced voting power.

The paper takes a twofold approach: First, it traces the evolution of the legal and regulatory framework in Italy, and second, it tests a series of interrelated hypotheses through an empirical analysis of 412 Italian publicly listed companies across a 10-year window (2013–2022). The Italian model is particularly instructive, given the country’s recent introduction of a regime for enhanced voting rights under the 2014 and 2024 Capital Laws, designed in part to counter corporate migration to more permissive jurisdictions such as the Netherlands.

The central question concerns the impact of loyalty shares on ownership stability. Descriptive statistics and inferential results confirm that companies adopting these mechanisms display more stable shareholder structures. Ownership concentration in firms with loyalty shares remains consistently higher – often exceeding 40 percent – while shareholder turnover is reduced, particularly in sectors requiring long-term investment strategies, such as industrial manufacturing, consumer goods, and specialized engineering.

A second area of inquiry concerns dividend policy. The findings support the hypothesis that firms with loyalty shares tend to pay a smaller proportion of their earnings as dividends. On average, loyalty-share firms distributed approximately 14 percent less in dividends than peers without loyalty shares, a difference attributed to two effects: the decreased need to use dividends as a governance mechanism to discipline management, and the increased strategic value of retained earnings for long-term controlling shareholders. This shift implies a reconfiguration of the traditional agency cost structure, with the greater influence of long-term shareholders potentially reducing principal-agent conflicts – but also posing new risks for minority stakeholders.

The third hypothesis concerns firm-level liquidity. The study reveals that companies with loyalty shares typically maintain higher levels of on-balance-sheet liquidity. This feature, confirmed by statistically significant differences in liquidity ratios, may function both as a stabilizing financial reserve and as a tool of strategic discretion for majority shareholders. The interaction between increased voting power and liquidity retention raises concerns regarding the potential for private benefit extraction, particularly in environments where minority protections remain underdeveloped.

The implications of these three strands – ownership stability, payout policy, and liquidity retention – are not isolated. Rather, the study underscores the ways in which they form a tight governance configuration. Enhanced voting rights do not operate merely as a stand-alone variable but recalibrate the firm’s entire relational ecosystem: the alignment between shareholders and management, the distribution of financial surplus, and the design of internal control mechanisms are all simultaneously affected.

Further reinforcement of these findings comes through a model applied to predict the likelihood of loyalty share adoption. The model, trained on multiple financial and structural variables, identifies Tobin’s Q, total assets, and share price as the strongest predictors. Tobin’s Q, in particular, emerges as the most influential determinant, suggesting that firms with high market-to-book ratios – often considered proxies for intangible asset intensity and long-term strategic orientation – are more likely to adopt tenure-based voting schemes.

Consideration of industry sectors and firm-size provide further nuance. Firms adopting loyalty shares are concentrated in sectors with relatively high capitalization and varied governance maturity, and while most adopters fall within the small- to mid-cap range (market capitalization under €2 billion), outliers with significantly higher valuations and workforces also exist. Thus, loyalty shares are not confined to a single governance type but rather display a degree of strategic flexibility depending on the firm’s context.

As for regulation, the paper’s analysis of the 2024 Capital Law highlights both the ambition and the ambivalence of recent Italian reforms. While the introduction of multi-tier voting structures and the formal recognition of pre-listing shareholding periods signal a policy shift toward loyalty-driven governance, questions remain about the effectiveness and uptake of these tools.

The paper advocates for a contextual, non-dogmatic approach to loyalty shares. While the empirical evidence supports their effectiveness in fostering shareholder continuity and reshaping financial policy, it also acknowledges the risks of entrenchment and diminished accountability, especially in jurisdictions with weaker oversight traditions. Rather than endorsing loyalty shares as a universal solution, the analysis positions them as a governance instrument whose efficacy depends on legal safeguards, procedural transparency, and the concurrent use of counterbalancing mechanisms such as sunset clauses, disclosure obligations, and minority protections.

For U.S. scholars and corporate policymakers, the study offers more than a comparative case. It provides a roadmap for considering how tenure-based voting rights might operate within the U.S. regulatory framework. While in North America the context differs – particularly in its litigation culture, disclosure standards, and shareholder engagement norms – the underlying governance dilemmas are analogous. Debates surrounding dual-class structures, founder control, and ESG-aligned long-termism echo many of the same concerns addressed in the European loyalty-share experiment.

The study contributes to academic and policy discourse by articulating the conditions under which loyalty shares can function as an effective tool to mediate between market efficiency and governance stability. In doing so, it underscores the need for a rethinking of influence allocation in public corporations – not by returning to outdated hierarchies, but by designing voting mechanisms that reflect commitment, responsibility, and the temporal dimension of corporate value creation.

This post comes to us from Professor Maria Lucia Passador at Bocconi University – Department of Law. It is based on her recent paper, “Game of Votes: Loyalty Shares and the New Battleground for Corporate Control,” forthcoming in the European Business Organization Law Review and available here.