The main changes to the existing shareholder directive are:
- A vote on director remuneration policy and annual pay reporting;
- The strengthening of shareholder rights and the facilitation of cross-border voting;
- A requirement for institutional investors to be more transparent about their engagement and voting activities;
- A requirement for proxy advisers to disclose certain key information about the preparation of their recommendation and advice; and
- The requirement for companies to be more transparent about related party transactions that are most likely to create risks for minority shareholders at the latest at the time of their conclusion.
The European Commission, European Council and the EP’s Legal Affairs Committee reached a deal on the directive last December. The EP’s plenary session vote rubber stamped this agreement and the formal sign off by the Council will be its final hurdle.
Italian MEP Sergio Gaetano Cofferati, the rapporteur who steered the legislation through the parliament, said: “The agreement on the Shareholders’ Rights Directive approved by the EP plenary is very positive. The measures agreed upon will help to steer investments towards a more long-term oriented approach and will ensure more transparency for listed companies and investors.”
The European Commission said the revised directive was required after it was shown that many shortcomings in corporate governance of listed companies contributed to the 2008 financial crisis. These included deficiencies in the engagement and control by shareholders and high executive pay not justified by performance which has led to distrust.
The Commission added that the new rules aimed to contribute to the long-term sustainability of EU companies, enhance the efficiency of the chain of intermediaries and to encourage long-term shareholder engagement.
The two year timetable for implementation could be an issue for the UK which is about to trigger Article 50 which will allow it to negotiate to leave the EU. The negotiations for this also have a two-year deadline. While many of the requirements, such as the shareholder vote on director pay, are already part of UK law others, such as the proxy adviser rules, are not. However, these issues formed part of the government’s recent green paper on corporate governance. The consultation on this ended last month.