A new EU directive, which aims to encourage effective and sustainable shareholder engagement in listed companies, was given the green light this summer, after changes were agreed by the EU in January.
Directive 2017/828/EU amends the existing Shareholder Rights Directive (2007/36/EU), and applies to companies with registered offices in a member state, whose shares are admitted to trading on a regulated market situated or operating within a member state.
The amended Directive includes new measures on directors’ remuneration, identification of shareholders, facilitation of exercise of shareholder rights, transparency for institutional investors, asset managers and proxy advisers and requirements for related party transactions.
Shareholders will have the right to vote on the directors’ remuneration policy at least every four years, although member states will have discretion on whether to make the vote binding or advisory. Assessment of a director’s performance will need to be based on both financial and non-financial performance criteria, including environmental, social and governance factors.
Shareholders will also have a right to vote on the annual report on pay, but this vote will only be advisory.
Companies will need to be able to identify their shareholders and to obtain information on shareholder identity from any intermediary who holds that information. Member states will also have to ensure that the exercising of shareholders’ rights, including the right to participate and vote in general meetings, are facilitated by intermediaries.
Institutional investors and asset managers must either develop and publicly disclose a policy on shareholder engagement, or explain why they have chosen not to do so.
A European Commission spokesperson said: “The financial crisis had shown that many shortcomings in corporate governance of listed companies contributed to the financial crisis. For example, important deficiencies in the engagement and control by shareholders impede good decision-making by companies; excessive directors’ pay not justified by performance has led to mistrust among shareholders and the society at large; and complicated access and costly procedures for exercise of shareholder rights.
“The new rules aim to contribute to the long-term sustainability of the EU companies, enhance the efficiency of the chain of intermediaries and to encourage long-term shareholder engagement.”
The amended Directive will need to be implemented in member states by 10 June 2019.