UK Government implements Shareholders’ Rights Directive

The Department for Business, Innovation and Skills has this week announced The Companies (Shareholders’ Rights) Regulations 2009 (to come into force on August 3rd), signalling completion of the final legislative stage of the European Shareholders’ Rights Directive. The Directive began life as a proposal and consultation by the European Commission back in 2004 and had been through many different forms and changes before adoption at the European level in 2007. Member states were then given 18 months to implement the Directive in their national legal frameworks, hence the 2009 Regulations announced this week.

The Directive broadly addresses the adoption of common standards in five issues:

• sufficient advance notice and prior information for meetings;
• the abolition of share-blocking;
• removal of legal obstacles to electronic participation;
• the right to ask questions; and
• voting by correspondence.

The UK government has also taken the opportunity of amending certain key aspects of voting in the 2006  Companies Act to improve or clarify the ability to split voting instructions, representation of corporations at company meetings (an important aspect of the representation of institutional investors) and the obligations of proxies to follow the instructions they are given.

It’s fair to say that the process has been a long, drawn-out one and one of the chief challenges has been reaching consensus on what is achievable in unblocking what the late Alistair Ross-Goobey coined early on as the ‘plumbing’ of  the voting process by the limited means of company law, and what is not. There are still hurdles to be addressed in the voting process which fall outside the remit of this Directive, but it is certainly a hopeful start.

Of course, all European member states are working to the same deadline, so season 2010 will be an interesting period to observe as issuers and investors get to grips with implementing and using the new ‘landscape’ of powers and responsibilities.

Whilst not necessarily the ‘giant leap’ in terms of shareholders’ rights that some may have hoped for, the adoption of the Directive across Europe should be much more than a single small step. It will enable investors in European listed companies to count on enjoying the same, basic rights across the EU and in some cases beyond: this can only be good for demystifying Europe as an investment arena on the world stage.