The Commission Proposal for a revision of the Shareholders rights Directive
The importance of creating a modern and efficient corporate governance framework for European undertakings, investors and employees that must adapted to the needs of today’s society and to changing economic environment was acknowledged by the Commission’s ‘Europe 2020’ Communication that calls for improvement of the business environment in Europe.
In the opinion of the European Commission, this requires the realization of the following more specific objectives : 1) Increase the level and quality of engagement of asset owners and asset managers with their invest companies; 2) create a better link between pay and performance of companies directors; 3) Enhance transparency and shareholders oversight on related party transactions; 4) Ensure reliability and quality of advice of proxy advisors; 5) Facilitate transmission of cross-border information (including voting) across the investment chain in particular through shareholders identification.
By this Proposal the European Commission intends to set up a revision of the Shareholders Rights Directive 2007/36.
The Proposal aims to render it easier for shareholders to use their existing rights over listed companies and enhance those rights.
Legal elements and Reasons of the Proposal
The Proposal in based on Article 50(2) ( g) of the Treaty on the Functioning of the European Union (TFEU) which is the legal basis for Directive 2007/36/EC. This article provides for the EU competence to act in the area of corporate governance. Il provides in particular for coordination measures concerning the protection of interest of companies members and other stakeholders, such as creditors, with a view to making such protection equivalent throughout the Union. Article 114 is the legal basis for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market.
According to the principle of subsidiarity the EU should act only where it can provide better results than intervention at Member States level and action should be limited to what is necessary and proportionate in order to attain the objectives of the policy pursued. As regards this aspect is important to note that there is strong evidence that the EU equity market has to a very large extent become a European/International market.
It’s really obvious that in view of the international nature of activities of institutional investors, asset managers and proxy advisors the objectives relating to engagement of these investors and reliability of the advice of proxy advisors cannot be sufficiently achieved by Member States. Action from Member States would only cover some of the institutions concerned and would most likely lead to different requirements, which could lead to a level playing field on the internal market.
Therefore seems necessary an amendment to the 2007 Shareholders Right Directive to reach :
- the harmonization of disclosure requirements at EU level that would be a remedy to asymmetry of information which is detrimental to shareholders and, therefore, plays a key role for minimising agency costs;
- to allow a certain degree a flexibility which is now assured only by some basic principles regarding shareholders identification, transmission or information by intermediates.
Moreover, institutional investors and asset managers should comply with certain of the obligations only on a comply or explain basis, for remuneration of directors the provisions only ensure the necessary transparency and a shareholders vote, while leaving the structure and level of remuneration to companies, while proxy advisors will only be subject to some basic principles to ensure accuracy and reliability of their recommendations.
The key-elements of the Proposal are :
- the enhancement of transparency and shareholders oversight on related party transaction ;
- the introduction of shareholders right to vote on the remuneration policy as regards directors;
- the introduction of the shareholders right to vote on the remuneration report of the past financial year.
The Proposal set up the following objectives :
- improving engagement of institutional investors and asset managers;
- strengthening the link between pay and performance of directors;
- improving shareholder oversight on related party transactions;
- enhancing transparency of proxy advisors;
- facilitating the exercise of rights flowing from securities for investors.
The negotiation of the Proposal : The Draft Report of the European Parliament.
On 7 May 2015 the Legal Affairs Committee of the European Parliament will vote the amended text of the Proposal.
The Draft Report issued by the Committee consists of 84 amendments .
The main adjustments to the Commission’s Proposal
The Committee underlines that it is important to ensure that any processing of personal data is done in accordance with national rules implementing Directive 95/46/EC. It is furthermore appropriate, in order to limit the transmission of personal data of shareholders, to provide for some adjustments to the proposed procedures for the identification of shareholders. In particular, the intermediary holding the information on shareholder’s identity should transmit it directly to the company ( and not pass it through the intermediary chain ).
- Identification of shareholders
In order to foster shareholder’s engagement, it is appropriate to provide them with the possibility to receive, where available, a list of significant shareholders from the company. This list shall only be used for the dialogue between shareholders on company-related issues. Considering that companies incur in costs in order to identify shareholders, it is appropriate to provide the company with the possibility to charge a fee when making the list of significant shareholders available.
- Transmission of information fees
In order to foster cross-border engagement and the exercise of voting rights by shareholders it is important to ensure, among others, that :
- in the context of the transmission of information by the company to the shareholders through the intermediary chain, the company provides the information in English, at the request of the intermediary;
- fees and charges levied by intermediaries are transparent and non-discriminatory. Any differences in the charges levied between domestic and cross-border exercise of rights should reflect the variation in the actual costs incurred for delivering the service.
- Support for non-term shareholding
Short-term shareholding is one of the main barriers for a proper engagement and for a stronger focus by shareholders on long-term performance and sustainability of investee companies. It is therefore of utmost importance that Member States put appropriate mechanisms in place in order to foster long-term shareholding.
- Further transparency for institutional investors, asset managers and proxy advisors
It is important to maintain and strengthen the transparency provisions contained in the Commission’s proposal with regard to institutional investors, asset managers and proxy advisors. In this context it is appropriate, between other proposals, to ensure that all institutional investors and asset managers develop an engagement policy and to provide for the mandatory reference by proxy advisor to a code of conduct.
- Remuneration policy and report
The definition of a correct and sustainable remuneration policy for directors and it proper implementation are key elements in order to ensure that companies are appropriately managed and focus on their long-term interests and sustainability.
On this issue the proposal of the Commission contains important provisions, which should not be watered down, but clarified and reinforced on some aspects. Employees should be entitled to express a view on the proposed remuneration policy and on the remuneration report, via their representatives. In order to ensure that directors focus on the company’s overall long-term performance, it is appropriate that criteria other than the shares’ value are taken adequately into consideration when evaluating directors’ performances.
- Related party transactions
European measures on related party transactions are necessary. If not properly operated and controlled, these transactions might be used by related party to appropriate value belonging the company. It is therefore necessary to establish for this transactions higher transparency and effective safeguards against abuses. The provisions should however be appropriate for all the different corporate governance systems and ownership structures in the different Member States.
- Delegated Acts
Considering the important tasks conferred to the Commission in this Directive on the specific definition of procedural elements with regard to shareholders’ identification, facilitation of exercise of voting rights, transmission of information and remuneration report, it is appropriate to use delegated acts instead of implementing acts.
 Communication from the Commission Europe 2020. A Strategy for smart, sustainable and inclusive Growth, COM(2010) 2020 final
 Stakeholders were consulted on two Green Papers, ‘Corporate Governance in financial insttitutions’ (COM(2010)284 final) and ‘The EU corporate governance framework’ (COM(2010) 164 final).
 2014/0121(COD), 19.12.2014