The Council of the European Union has announced that political agreement has been
reached on a new directive to establish requirements to encourage
shareholder engagement in the long term and increase transparency.
Most of the proposed measures will have limited impact on UK listed
companies, as they are similar to existing UK measures.
Who will the rules apply to?
The directive will amend the existing EU Shareholder Rights
Directive (Directive 2007/36/EC). The Shareholder Rights Directive
applies to companies which have their registered office in a Member
State and whose shares are admitted to trading on a regulated
market situated or operating within a Member State. Accordingly,
companies incorporated outside the EU with shares listed on an EU
regulated market will not be subject to the rules (although
equivalent rules may be applied by the listing rules in the country
of listing). Similarly, companies incorporated in a Member State
with shares listed on a market which is not an EU regulated market
will not have to comply with the rules.
The measures included in the new directive include:
Shareholders will have the right to vote on the directors'
remuneration policy. The policy should contribute to the overall
business strategy, long-term interests and sustainability of the
company and should not be linked to short- term objectives. The
remuneration policy will also have to be publicly disclosed without
delay after it is voted on by shareholders at the general
Identification of shareholders
The new directive will ensure that companies are able to
identify their shareholders and to obtain information on
shareholder identity from any intermediary who holds that
information. Member states may choose to implement a threshold of a
minimum holding of 0.5% of shares or voting rights before a company
can request shareholder identification.
Facilitation of exercise of shareholder rights
Member States will have to ensure that the exercise of
shareholders' rights, including the right to participate and
vote in general meetings, are facilitated by intermediaries.
Related party transactions
The requirements for related party transactions are less onerous
than those in Listing Rule 11 for premium listed companies, but
will impact standard listed companies (who are not subject to LR 11
but will be subject to these European rules). Premium-listed
companies will also need to consider whether the different
definition of related party (by reference to accounting standards)
means that more transactions are within scope.
For any material transaction (to be defined by each Member
State) between a listed company and a related party:
the transaction must be
Member States may require the
announcement to be accompanied by a report from an independent
third party, the board or a committee of independent directors that
the transaction is fair and reasonable from the perspective of the
company and the non-related shareholders;
the transaction must be approved by
shareholders or the board. If approved by the board, Member States
may require that shareholder approval is needed as well.
Transparency for institutional investors, asset managers and
Under the new directive, 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. Proxy advisers will be subject to transparency requirements and
will be subject to a code of conduct.
The final text will need to be endorsed by the European
Parliament and then by the Council of the EU. It will then be
published in the Official Journal of the EU and Member States will
have to transpose it into national law two years after that.
Although the UK may not be part of the EU by the time of that
deadline, we do not yet know whether the UK will continue to apply
this and other European legislation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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