On 9 April 2014, the European Commission (‘EC’) published a proposal (COM 2014/213) to amend the Shareholder Rights Directive (2007/36/EU). With this proposal, the EC aims to enhance effective and long-term shareholder engagement within listed companies. Furthermore, it is envisaged that listed companies will benefit from identifiable shareholders that are engaged and use their voting rights in a well-informed manner.
The key elements of the proposal are:
- Identification of shareholders, transmission of information with shareholders, and facilitation of the exercise of shareholder rights
Intermediaries will be required to offer listed companies the option to identify their shareholders. Furthermore, listed companies will be required to provide intermediaries with standardized information aimed at the shareholders in a timely manner. Also, the listed companies will be required to confirm the votes cast in general meetings by or on behalf of shareholders.
- Transparency and shareholder engagement of institutional investors
Through the use of several transparency requirements, institutional investors and asset managers will be encouraged to exercise an equity investment strategy aligned with the medium to long-term performance of their assets. They will need to comply with a number of requirements such as preparing and disclosing a shareholder engagement policy. This engagement policy should relate to the exercise of supervisory and voting rights, the conduct of a dialogue with the company, the use of proxy advisors, and how to manage actual or potential conflicts of interest.
- Improving reliability, transparency and quality of proxy advisors’ recommendations
The preparation and quality of the voting recommendations of proxy advisors will be audited. Proxy advisors will be required to publicly disclose certain key information related to the preparation of their voting recommendations on an annual basis, specifying whether and how they engaged in a dialogue with the company in preparing the recommendation.
- Influence of the general meeting on the remuneration policy for managing directors
The general meeting will be authorised to vote on the remuneration policy for the managing directors. This already exists in the Netherlands. A new element is that the remuneration policy should be submitted to the general meeting for approval every three years. Listed companies must prepare a remuneration report with an overview of the remuneration awarded to each individual managing director. The general meeting is authorised to vote on the report annually. The Dutch government has already indicated that it supports the increase of the general meeting’s influence on the remuneration policy for managing directors, but noted that it does not consider it appropriate for the general meeting to also vote on the execution of the remuneration policy.
- Improving transparency and influence of shareholders on related party transactions
Shareholder approval will be required for significant transactions with related parties. Significant transactions are those that either represent more than 5% of a company’s assets or potentially have a significant impact on a company’s turnover or profits. All related party transactions with a value of more than 1% of the company’s assets, must be disclosed at the time the transaction concludes. Such disclosure must be accompanied by a statement from an independent expert (the ‘fairness opinion’) providing insight into the conditions of the transaction. At present, the Dutch government considers – without further explanation – the proposals disproportionate given that it is not certain whether related party transactions pose a problem.
For more information we refer to our Corporate Update of 8 May 2014.