Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and venture capital industry.
If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.
020 7585 1406
Shareholder Rights Directive
The European Parliament has agreed to adopt the European Commission's proposal to amend the Shareholder Rights Directive with certain amendments.
The European Commission published its original proposal to amend the Shareholder Rights Directive in April 2014. The proposal included provisions relating to:
1. a company’s remuneration policy and the individual remuneration of directors;
2. related party transactions representing more than 5% of the company’s assets or transactions which could have a significant impact on profits or turnover;
3. voting recommendations by proxy advisors; and
4. the requirement for institutional investors and asset managers to disclose their voting and engagement policies.
The European Parliament in turn resolved to adopt amendments to the European Commission’s proposal in July 2015 and to enter into informal talks with Member States with a view to seeking agreement on the final version of the Directive. The European Parliament, Commission and EU Council then entered into informal trialogue discussions and the Commission announced that agreement had been reached in December 2016. The European Parliament agreed to adopt the Directive in March 2017 with the following amendments.
European Parliament amendments
The amendments cover matters relating to the following:
1. The investment strategy of institutional investors and asset managers – the amendments provide that institutional investors must publicly disclose how the main elements of their investment strategy are consistent with, in particular, their long-term liabilities, and, where an asset manager invests on behalf of an institutional investor, how the arrangement with the asset manager incentivises the asset manager to align its investment strategy with, in particular, the institutional investor's long-term liabilities and medium to long-term financial and non-financial performance, and how the evaluation of the performance of the asset manager (including its remuneration) take the institutional investor's absolute long-term performance into account.
2. Identification of shareholders and the exercise of shareholder rights.
3. Director remuneration - Member States may allow companies to derogate temporarily from the remuneration policy in exceptional circumstances (being situations where such derogation is necessary to serve the long-term interests of the company as a whole or to assure its viability), provided that the policy includes the procedural conditions under which the derogation can be applied and specifies the elements of the policy from which a derogation is possible. In addition, Member States are no longer required to ensure that the value of shares does not play a dominant role in the financial performance criteria.
4. Transparency of proxy advisors - Member States must ensure that proxy advisors publicly disclose reference to a code of conduct used in relation to their voting recommendations and provide clear and reasoned explanations in the event that they depart from any of the recommendations in the code.
5. Transparency and approval of related party transactions – in particular, to remove the provision that Member States may exclude transactions entered into in the ordinary course of business and concluded on normal market terms and to introduce provisions allowing Member States to exclude: (i) clearly defined types of transactions for which national law requires approval by the general meeting; (ii) transactions regarding remuneration of directors, or certain elements of remuneration of directors; (iii) transactions entered into by credit institutions on the basis of measures, aiming at safeguarding their stability, adopted by the competent authority in charge of the prudential supervision; and (iv) transactions offered to all shareholders on the same terms where equal treatment of all shareholders and protection of the interests of the company are ensured.
6. Remuneration policy and information to be provided in the right to vote on the remuneration report – Member States shall ensure that directors have collective responsibility for ensuring that the remuneration report is drawn up and published in accordance with the requirements of the Directive.
7. Amendments to the Accounting Directive – in particular, the removal of Parliament's previously proposed insertion of requirements in the Accounting Directive for large undertakings and public-interest entities, and the Transparency Directive for issuers, to publicly disclose certain company and financial information on a country by country basis.
The Shareholder Rights Directive must now be adopted by the EU Council and Member States will then have 24 months from the date the Directive comes into force to implement the new rules.
The European Parliament’s legislative resolution can be found at the following link: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+P8-TA-2017-0067+0+DOC+PDF+V0//EN
This document is for general guidance only. It does not contain definitive advice.
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
20 March 2017