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Could Shareholder rights directive boost corporate long-term vision?

The European Commission has announced that it is now in the final stages of revising the Shareholder rights directive, which aims to address some of the shortcomings in the corporate governance of listed companies, which contributed to the financial crisis. The new rules aim to improve the long-term stability of EU companies by tackling the overly short-term focus of strategies, particularly in institutional investors and asset managers. The new rules also seek to encourage greater shareholder engagement and tackle unfair remuneration for company directors.

Revised directive changes

The main changes in the revised directive are:

  1. Stronger shareholders rights and facilitation of cross-border voting.
  2. Long-term engagement of institutional investors and asset managers, through increased transparency requirements and encouraging investors to adopt a more-long-term focus and to consider social and environmental issues.
  3. More transparency of proxy advisors.
  4. 'Say on pay': shareholders will have the right to know how much the company's directors are paid and they will be able to influence this, to guarantee a stronger link between pay and performance.
  5. Companies must publicly disclose material related party transactions that are most likely to create risks for minority shareholders at the latest at the time of their conclusion.

The new rules will apply to more than 8,000 listed companies on the EU regulated markets, whatever their sector of activity, capitalising around €8 trillion. The directive is now due to be approved by the European Council and once it is published in the official journal, it will become law within two years. For more information, see the Commission's Q&A on the Shareholder rights directive

CTMfile take: The Shareholders' rights directive tackles corporate governance shortcomings related to the behaviour of companies and their boards, shareholders, intermediaries and proxy advisors. This revision will affect how directors' pay is agreed with shareholders and will oblige companies to align director remuneration with long-term strategic goals, which should have a positive impact in terms of encouraging long-term vision and risk management.

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Control & Compliance in Operations

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