Amendments to the Shareholder Rights Directive

Date 24 okt. 2017
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Introduction

On 9 April 2014, the European Commission submitted its proposal to amend the current Shareholder Rights Directive from 2007. The Shareholder Rights Directive has resulted, inter alia, in a number of changes related to the organization and holding of general meetings in listed companies.

 

Not only does the amendment mean that shareholders are granted different new rights, but it also introduces a number of new requirements to listed companies as well as to a number of other players.

 

In the following, the essential elements of the proposed amendment and the expected impact on Danish listed companies and other stakeholders will be examined.

 

The following article is prepared on the basis of the draft directive as discussed in the European Parliament on 14 March 2017. The amendment is expected to be adopted during the spring, after which member states must implement the directive in national law within two years.

 

The current Shareholder Rights Directive

The current Shareholder Rights Directive (The European Parliament and Council Directive 2007/36/EC) was adopted on 11 July 2007. The Directive introduced a number of rights to the shareholders in connection with general meetings in listed companies. The intention was to remove the main obstacles for shareholders to exercise their voting rights and influence across national borders.

The Directive was implemented in Denmark in connection with the adoption of the Danish Companies Act in 2009, which implied, inter alia, that general meetings in listed companies must be convened by no less than three weeks’ notice compared to the previous eight days. Furthermore, certain additional requirements were introduced in relation to the disclosure of information for shareholders of listed companies.

 

Background and Purpose of the Amendment

The proposal to amend must be seen in light of a number of inexpedient conditions which were discovered during the financial crisis. In connection with the introduction of the proposal, the European Commission stated that the intention was to remedy different defects of corporate governance in listed companies where, according to the European Commission, stakeholders did not supervise the companies they had invested in to a satisfactory degree, but had simply supported the propositions by the management.


Thus, it is an essential element of the proposal to make it easier for shareholders to exercise their rights so that stakeholders become more committed and hold management responsible for acting in the interest of the company in the long term. The proposal to amend is thus highly long-term oriented.

 

Identification of Stakeholders

The proposal to amend introduces an obligation on intermediaries to communicate information to the company regarding the shareholders’ identities at the company’s request.

 

The company will at minimum be entitled to receive the following:

  • Information regarding the shareholder’s name, address, email address and a legal entity’s registration number or another unique identification form.
  • Information regarding the number of shares owned by the shareholder.
  • Information regarding the category and class of the shares and the date of their acquisition.

At the company’s request, intermediaries (e.g. banks and security exchanges) must disclose the information stated above. However, each Member State may set a lower limit so that information about shareholders with a maximum ownership of 0,5% of all shares or voting rights is exempt from this requirement.

 

Please note that the aforementioned information is disclosed to the company for the purpose of its communication with the shareholders. Consequently, this is not a provision that will increase access to the public for insight into the company’s ownership, and it is up to the company to request such information.

In Denmark, it is most common for a company to receive information about new shareholders for the purpose of registration into the register of shareholders. It has become increasingly common for listed companies to use digital communication when contacting their shareholders, which the amendment supports.

 

Electronic Voting

If votes are submitted electronically, shareholders must receive confirmation of the vote. Also, after any general meeting, shareholders must have the option to request confirmation that their vote was duly registered at the general meeting. Member States may decide that such a request must be made within three months of the voting date.


Today, several different solutions exist that allow companies to secure detailed information about voting. It is expected that these solutions will be adapted to the extent that requirements as to the format of the aforementioned confirmation will be introduced.

 

Institutional Investors and Asset Managers

Institutional investors and asset managers must either prepare and publish a policy for active ownership or explain why they have not done so (“comply-or-explain”). In any case, companies must also publish annual statements on how the policy has been completed.

 

An element of this statement is that a general description must be provided, including of the way in which the voting rights relating to the relevant shares have been used (except for non-material voting). Both the policy and the statement must be available online.

 

Institutional investors will also have to publish how the key element of their equity investment strategy is in line with their obligations, and certain information regarding possible agreements with asset managers must be provided, including on how the agreement gives the manager incentive to match investment strategies and decisions with the institutional investor’s obligations. This information must be publicly available online and included in the reporting.

 

In Denmark in 2016, the Corporate Governance Committee published its recommendations on active ownership directed at institutional investors, in which transparency is also included as an essential element.

Certain legal entities which, based on information analyzed, provide counseling, prepare analyses or recommendations regarding the pursuit of voting rights (“proxy advisors”) will also be subject to rules on the establishment of a code of conduct based on a comply-or-explain principle.

 

Remuneration of the Management

The amendment implies a right to contributory influence in relation to the remuneration policy which the companies must prepare for the remuneration of board and direction members (“say on pay”). The remuneration policy must be clearly understandable and must include a description of the remuneration, including a description on bonuses, incentive-based remuneration and the criteria for achieving them. Remuneration of members of management must be done in accordance with the agreed remuneration policy, which must be published to create transparency about these matters.

 

The legal position in relation to remuneration of members of management in listed companies is currently found in Section 139 (1) of the Danish Companies Act, where it states that the senior management body of the limited liability company must have provided general guidelines for the limited liability companies’ incentive pay of the management of the limited liability company. Furthermore, the Recommendations for Corporate Governance recommend that the board prepare a remuneration policy describing in detail the remuneration form, just as it is recommended that this policy is approved at the general meeting and subsequently published. These recommendations for corporate governance are, however, merely recommendations and thus not binding on companies which may choose not to follow them and instead explain why they have chosen not to follow the recommendations. With the amendment, the content of these recommendations become law.

 

With the amendment, rules are introduced regarding companies’ obligation to submit a remuneration report with information regarding the remuneration of each board and direction member, indicating e.g. how much consideration has been received during a given period and whether the remuneration has changed over the past five financial years.

For small and medium-sized listed companies, Member States may decide that the remuneration report should only be discussed at the general meeting and that the next report should explain how to implement the amendment.

 

Related Party Transactions

The new rules also imply that listed companies must publish transactions of a certain size with related parties. The purpose of these rules is to secure transparency and control with such transactions, which may potentially have a significant impact on the finances of a company and shareholders’ interests. To ensure compliance with these rules, the amendment contains rules providing that transactions with related parties require the approval of the general meeting or the board.


In other words, the increased requirements are intended to protect the interest of the minority shareholders and the companies’ interests against shareholders who are pursuing short-term financial goals.

 

Our Opinion

With the amendment to the Shareholder Rights Directive, there will be greater transparency in the affairs of listed companies. It is also be expected that the Directive will mean that not only listed companies, but also their shareholders and other actors will have even greater focus on their involvement in these companies as the result of the new requirements and opportunities that the Directive introduces.

 

The amendment to the Directive does not only focus on the regulation of listed companies, but also that of other actors, such as institutional investors and advisors, so that in general, this will create greater involvement and greater interest in exercising control and influence by the shareholders which ultimately means that there will be more focus on long-term goals.

Denmark already focuses a great deal on a number of the elements which are covered by the Directive. So far, some of the Danish initiatives have been implemented through recommendations on corporate governance and recommendations on active ownership. With the amendment to the Directive, this work will continue.

 

If you have questions or want futher information about the amendment of the Shareholder Rights Directive, please contact partner Dan Moalem ( dmo@mwblaw.dk ), Senior Associate Henning Hedegaard Thomsen ( hht@mwblaw.dk ) or Junior Associate Jep Becher Jensen (jbj@mwblaw.dk)

 

 

The above does not constitute legal counseling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.