On 9 April 2014, the European Commission published a proposal (COM 2014/213) to amend the Shareholders' Rights Directive (2007/36/EU) (the "Proposal').
The European Commission aims to use the Proposal to encourage effective and sustainable shareholder engagement in listed companies. After a long period of negotiations, in December 2016 the European Council, the European Parliament and the European Commission have reached a tentative agreement on the definitive text of the Proposal. On 14 March 2017 the European Parliament have adopted its position at first reading. On 23 March 2017 also the Council formally adopted the directive. The text of the Proposal has been changed on many points. After the Directive enters into force, EU Member States will have two years to implement it in their national legislation.
The main elements of the Proposal are discussed below.
- Identification of shareholders – transmission of information with shareholders and facilitation of the exercise of shareholders' rights.
Member States must ensure that listed companies have the right to identify their shareholders in order to communicate directly with them to facilitate the exercise of shareholder rights and shareholder engagement. Intermediaries have an obligation to cooperate with this identification. Member States may decide that the request for identification only relates to shareholders who own more than a certain percentage of the shares or voting rights. This percentage may not exceed 0.5%. The Dutch system of identification of the Securities Giro Act (Wet giraal effectenverkeer) includes a limitation of 0.5%. If votes are cast electronically, listed companies will have to confirm that the company has recorded and counted the votes.
- Transparency and shareholder engagement of institutional investors and asset managers in their investment.
Institutional investors and asset managers are, through various transparency obligations, urged to implement an investment strategy that is conducive to the medium- and long-term performance of the companies in which they invest. As part of this strategy, they need to draft and publish a policy on their shareholder engagement, or explain why they have decided not to do so. The policy must include the conduct of dialogue with the company, the exercise of voting rights and the management of conflicts of interest. It is important that the policy describes how the relevant institutional investor or asset manager monitors the company invested in, not only on strategic and financial matters but also on risk, capital structure and ESG issues. Institutional investors have to disclose annually how their investment strategy is tailored to the profile and duration of their liabilities, particularly the long-term obligations, and how it contributes to the medium- and long-term performance of their portfolio. When institutional investors make use of asset managers, the main elements of the agreement with the asset manager related to a number of specific issues must be disclosed.
- Improve the reliability, transparency and quality of proxy advisors' recommendations.
The development and quality of proxy advisors' recommendations will be controlled. They will have to comply with a code of conduct or provide an explanation if they do not. In addition, proxy advisory firms need to annually disclose information about the realization of their investigations and (vote) recommendations. They must also indicate whether, and if so in what way, they have entered into a dialogue with the company and stakeholders when shaping their recommendations.
- Influence of the general meeting on the remuneration policy for managing directors.
Listed companies must establish a remuneration policy for managing directors, taking special provisions into account, such as an explanation of how the remuneration policy contributes to the long-term interests and the sustainability of the company. The shareholders may vote on the remuneration policy at least once a year at the general meeting and if there is a material change. Member States may allow listed companies to deviate from the remuneration policy in exceptional cases. Immediately after the vote, the remuneration policy must be disclosed on the company's website. Listed companies must also prepare a remuneration report, including an overview of the benefits granted to individual directors. The company must include in the remuneration report how the total amount of remuneration contributes to the long-term performance of the company. In addition, the company must include information in the report on the annual change in the remuneration of directors over at least the last five years, and the development of the average full-time remuneration of employees of the company in the same period. The general meeting of major listed companies may vote annually on this report. The remuneration report needs to be published on the website.
- Improvement of transparency and influence of shareholders in relation to related party transactions.
Significant transactions with parties related to the company ("related parties") must be approved by the shareholders, the management or supervisory body. Companies must disclose material transactions by the time they are entered into and provide all the information that is needed to assess the accuracy of the transaction. Member States must define what is meant by material transactions, taking into account: (a) the impact that the information about the transaction will have on the economic decisions of the shareholders, and (b) the risk posed by the transaction for the company and its unrelated (minority) shareholders.