First proposed in 2014 by the European Commission, the revised Shareholders’ Rights Directive (2007/36/EC) was adopted on the 14 of March 2017 by the European Parliament.
As pointed out by the European Commission in its press release, this revision is aimed at “ contributing to the long-term sustainability of the EU companies; enhance the efficiency of the chain of intermediaries and to encourage long-term shareholder engagement”.
Among the new tools available for shareholders, the new directive provides for:
• “Say on Pay”- Oversight over Directors’ remuneration: this measure will empower shareholders to vote on remuneration policy for company directors. The idea behind this measure is to tie directors ‘remuneration more closely to the company’s performance and long-term interests’.
• Identification of Shareholders: this measure will ensure that companies are able to identify their shareholders and to obtain information on shareholder identity. The identification of shareholders will facilitate dialogue between the company and them and will make it easier for shareholders to exercise their rights (right to participate and to vote in general meetings…). Please see BETTER FINANCE reservations below.
• Facilitation of exercise of shareholders’ rights: intermediaries will be asked to facilitate the exercise of the rights by the shareholders (right to participate and vote in general meetings). They will have to deliver all information from the company to shareholders in a standardized and timely manner.
• More transparency for institutional investors, asset managers and proxy advisors: Institutional investors (pension funds and life insurance companies) and assets managers will be required to publicly disclose policies describing how they integrate shareholder engagement in their investment strategies or explain why they have chosen not to do so. Proxy advisors (who provide research and recommendations on how to vote in general meetings to their clients) will have to disclose key information, e.g. the main information sources and methodologies applied, relating to the advice they provide.
In its press release published in December 2016, BETTER FINANCE welcomed the agreement reached on 9 December 2016 between the European Parliament and the Presidency of the Council but raised some concerns regarding the improvements brought by this directive to shareholders’ rights.
BETTER FINANCE noted that the identification of shareholders is an improvement but warned that Member States will decide that companies within their borders are only allowed to request identification with respect to shareholder holdings that constitute more than a certain percentage of shares or voting rights not exceeding 0.5%. With such a high threshold, BETTER FINANCE warns that only a very small minority of shareholders of EU companies will be identified. BETTER FINANCE therefore asked the Member States to set the threshold as low as possible.
Secondly, BETTER FINANCE raised the fact that cross-border investments will still face important hurdles since intermediaries will still be able to charge higher fees to shareholders who want to exercise their cross-border voting rights. To counter this, BETTER FINANCE asked the European Commission and the Member States to ensure the enforcement of the provision which provides that “any differences in the charges levied between domestic and cross-border exercise of rights shall only be permitted where duly justified and shall reflect the variation in actual costs incurred for delivering the services " (Article 3.d Transparency of costs, European Commission Proposal COM (2014) 213 final).
Despite the willingness of the European Commission and of the co-legislators to strengthen shareholders’ rights, BETTER FINANCE remains skeptical of the improvements brought by the revised Directive.
The new Directive will be formally adopted by the EU Council of Ministers and Member States will have 24 months to transpose it to national law. The effectiveness of the Directive will depend on the Member States’ transposition and of the enforcement of these new provisions.
Read BETTER FINANCE Press release here
Read European Parliament Press release here
Read the European Commission Press release here