HomeInsightsCouncil of European Union adopts Directive aimed at strengthening shareholders’ engagement in big European companies

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The Council says that the Directive will encourage transparent and active engagement by shareholders of listed companies by reviewing the current Shareholders’ Rights Directive (2007/36/EC).

The new Directive covers:

  • Remuneration of directors: shareholders will have the right to vote on the remuneration policy of the directors of their company. Under the new rules, the remuneration policy must contribute to the business strategy, long-term interests and sustainability of the company and should not be linked to short-term objectives. Directors’ performance should be assessed using both financial and non-financial performance criteria, including where appropriate environmental, social and governance factors. The remuneration policy will also have to be publicly disclosed without delay after the vote by the shareholders at the general meeting;
  • Identification of shareholders: the new Directive will ensure that companies are able to identify their shareholders and obtain information regarding shareholder identity from any intermediary that holds the information;
  • Facilitation of shareholders rights: intermediaries will have to facilitate the exercise of the rights by the shareholder, including the right to participate and vote in general meetings. They will also have the obligation to deliver to shareholders, in a standardised and timely manner, all information from the company that will enable the appropriate exercise of their rights. They will also have to publicly disclose any charges related to the new rules;
  • Transparency for institutional investors, asset managers and proxy advisors: the new requirements will help institutional investors and asset managers be more transparent in their approach to shareholder engagement. They will have either to develop and publicly disclose a policy on shareholder engagement or explain why they have chosen not to do so. While proxy advisors play an important role in corporate governance by contributing to a reduction in the costs of the analysis of company information, they are also important in influencing voting behaviour of investors. Therefore, proxy advisors will be subject to transparency requirements and to a code of conduct; and
  • Related party transactions: material related party transactions must be submitted for approval by the shareholders or supervisory body to ensure adequate protection of the company. Companies will have to announce publicly material transactions at the time of the conclusion of the transaction at the latest, with all the information needed to assess the fairness of the transaction.

Member states have up to two years to incorporate the new provisions into domestic law. To read the Council’s press release, click here.