The defeat of an advisory pay proposal at Renault, and the board’s dismissive reaction, have brought questions of governance to the fore—not least concerning the governance of French corporate governance itself, and whether corporate France’s attempt to self-regulate will be enough to pre-empt state intervention.

France is still relatively new to say-on-pay votes; the Afep-Medef, the coalition of employers’ federations that sets the French Corporate Governance Code (the “Code”), only included the recommendation to hold individual advisory votes on the pay of top executives in 2013. At the recommendation’s origin lay the French government’s threat to legislate say-on-pay into existence, and corporate France’s successful attempt to avoid state regulation through self-regulation. Now, the apparent lack of consequences following Renault’s failed pay vote has sparked new government threats, this time to impose binding votes; in turn, Afep-Medef is holding a public consultation on further revisions to the Code.

After last year’s AGM season saw pay contested at many French companies, perhaps it was only a matter of time before shareholders gave a definitive “non” to a say on pay proposal. In this context, the defeat chez Renault is both unprecedented, and somewhat unsurprising—indeed, France’s largest car manufacturer has been a ‘leader’ in say-on-pay opposition for some time now, receiving just 58% approval for the remuneration of its CEO, Mr Carlos Ghosn, at its 2015 AGM, down from 64% in 2014.

Even in the context of such a distinguished history, the board’s curt response to the vote has raised eyebrows: immediately after the AGM’s conclusion, the board announced that it had met to confirm Mr Ghosn’s remuneration and reiterated the quality of 2015 results, adding that the remuneration committee had been asked to review pay structures for 2016. The board’s response to the vote is required under the Code and, as this is the first time such a proposal has been rejected, there is no template to work off in determining how to respond; nonetheless, many stakeholders were surprised by the board’s failure to engage with investor concerns. Amongst those taken aback by the speed and dismissiveness of Renault’s reply was Pierre Gattaz, the president of France’s largest employer federation (Medef), who professed himself “shocked” by the swiftness of the board’s action, and “uneasy” that the proposal that had been “forced through” in the face of shareholder opposition.

As to the cause of the opposition, as is often the case with shareholder revolts, there were likely a number of factors at play. In this case, the vote should be viewed in the context of the Nissan-Renault alliance and the simmering disagreement between the company and the French state, and in particular between Mr Ghosn and Mr Emmanuel Macron, a former investment banker turned socialist minister (and currently France’s Minister of the Economy) who recently stated that if Renault did not heed its shareholders, the state would be forced to legislate on executive pay.

The alliance figures into many shareholders’ assessment of Mr Ghosn’s remuneration because he holds the reins of both companies and receives a paycheque from each. Moreover, despite the fact that Renault’s shareholding in Nissan, standing at over 40%, makes the latter a subsidiary pursuant to French law, Mr Ghosn is remunerated under two entirely separate mandates. As a result, shareholders did not get a vote on his Nissan pay, or even an explanation of how it was earned; all that Renault disclosed was the total, €8 million. Renault’s board has been insistent that despite the alliance, Mr Ghosn’s pay at Nissan “is of the exclusive competence of the decision-making bodies of Nissan” and, as a result, the decision to include “no information in the [Renault AGM] notice of meeting regarding the compensation received from Nissan is not misleading for shareholders….” However it appears that many investors feel differently—not least the French state, currently Renault’s largest shareholder.

Indeed, relations between the company and the state are far from rosy. The young Macron and the veteran Renault head man have already butted heads regarding the “Loi Florange”, a piece of legislation which granted long-term shareholders in French companies double voting rights, unless a contrary clause was adopted in a company’s articles of association. In advance of the shareholder vote on that contrary clause at Renault, the state increased its share in the company to 19.7% to ensure the proposal would not meet the two-thirds requirement, leading to a well-publicised spat. The government’s victory on double voting rights was quickly followed by calls from Mr Macron for a full merger with Nissan on terms that would put Renault’s shareholders in the driving seat—calls which were promptly ignored. The whole episode culminated in Renault’s independent board members condemning the government’s “destabilising” influence on the Nissan-Renault alliance, the signing of an agreement between the state and the company that would cap the state’s voting rights on most resolutions, and an amendment to the master co-operation agreement with Nissan, in which Renault agreed not to use its shareholding to oppose the Nissan board.

Opposition to Mr Ghosn’s pay comes in the middle of this uneasy truce between the alliance and the state, and appears to reflect the diverging priorities of the French automotive champion and the governing French socialist party, which has strongly emphasized the safeguarding of French jobs and moderation in executive pay. It is a battle that is sure to rage on; early last week, French president François Hollande joined the fray, announcing that ‘If there is no drastic action [from companies], all decisions on pay by shareholders will be binding”, indicating in no uncertain terms his government’s willingness to make good on Emmanuel Macron’s threat.

The Afep-Medef responded to the government’s sabre rattling last Friday; in what is likely another attempt to ward off state regulation, it announced revisions to the Code that will harden the language requiring a vote on executive remuneration, describing it as an “imperative”, but stopping short of recommending binding votes. Additionally, the revised Code will further emphasise the link between performance and variable pay, stressing the need for transparency and challenging performance targets. Later, on Monday, it published a draft of the revised Code, which includes the recommendation that in the event of a failed say-on-pay vote the board of directors must examine the reasons for the result, and publish, on the company’s website, its decision on eventual modifications to the compensation amounts that failed the vote or to future remuneration policy; moreover, Companies will be required to present a report on their response to shareholders’ disapproval at their next AGM. Before taking effect in September of this year, the revised Code will be subject to a public consultation, the first of its kind conducted by Afep-Medef; interested parties can respond here. Whether this reaction will be enough to assuage the government’s grievances, and avoid legislation, is yet to be seen.