Shareholder Rights Directive
Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies
Directive (EU) 2017/828 amending Directive 2007/36/EC
The Directives establish rules promoting the exercise of shareholder rights at general meetings of companies with registered offices in the EU and the shares of which are admitted to trading on a regulated market in the EU.
The 2017 revision (Directive (EU) 2017/828) aims to encourage long-term shareholder engagement to ensure that decisions are made for the long-term stability of a company and take into account environmental and social issues. The revised directive:
facilitates shareholder identification and information flows between the shareholders and the company;
improves the oversight of directors’ remuneration;
regulates related party transactions*; and
introduces greater transparency.
KEY POINTS
A company must give shareholders information on general meetings, including 21 days’ notice, and the date, location, agenda, voting and participation procedures must be listed on its website.
Companies must also provide other information such as:
the total number of shares and voting rights;
documents to be submitted;
a draft resolution for each agenda item of the meeting; and
forms to be used to vote by proxy (when a shareholder authorises another person or firm to represent them).
Shareholders have the right to:
put items on the agenda of general meetings and to propose resolutions (if they have a 5% holding in the company’s capital);
ask questions related to items on the agenda that the company is obliged to answer; and
participate and vote without limitations other than the qualifying date set by a company for owning shares.
EU countries must abolish any restrictions on shareholders participating at meetings through electronic means, and to accept proxy appointments via electronic means. Companies must also normally count the exact number of votes for each resolution and publish the results within a maximum of 15 days.EU countries may opt to set shorter deadlines.
Directive (EU) 2017/828 amends the 2007 directive, adding additional rights as follows:
Say on directors’ pay
Shareholders will have the right to vote on director remuneration policy at least every 4 years.
The vote may be binding or advisory, at the choice of the EU country.
The policy should support company strategy. It should describe the fixed and variable components of directors’ pay, including the main characteristics of pension and payments linked to the termination of a contract.
In the case of variable remuneration, director performance should be assessed on both financial and non-financial criteria, where applicable . The policy should state whether clawback or any deferral or holding period applies.
Shareholders will also have the right to vote on annual remuneration reports that provide information on individual directors’ pay during the previous financial year. EU countries may allow small- and medium-sized enterprises to have a discussion at the general meeting as an alternative to a vote.
The remuneration policy and the reports will also have to be publicly disclosed.
Identification of shareholders
Companies have the right to identify their shareholders and obtain information on shareholder identity from any intermediary who holds that information. Intermediaries (such as banks) have to transmit such information without delay.
EU countries may implement a threshold of a minimum holding of 0.5% of shares or voting rights before a company can request shareholder identification.
Facilitation of shareholder rights
New rules aim to make it easier for shareholders resident in another EU country to participate in general meetings and vote.
The exercise of shareholder rights, including the right to participate and vote in general meetings has to be facilitated by intermediaries.
Intermediaries also have to give shareholders all the information from the company that allows shareholders to properly exercise their rights and transmit to the company the information received from shareholders in relation to the exercise of their rights.
Related party transactions
For any material transaction (to be defined by each EU country) between a listed company and a related party:
the transaction must be publicly announced;
depending on the EU country, an independent report may have to be published assessing whether the transaction is fair and reasonable from the company’s perspective and for the other shareholders;
the transaction must be approved by shareholders or the board. EU countries may also require shareholder approval.
Transparency for institutional investors, asset managers and proxy advisers
Institutional investors and asset managers must publish a policy on shareholder engagement, or explain why they have chosen not to do so. They also have to disclose information annually on how they have implemented this policy, in particular how they voted at significant votes.
Institutional investors are required to explain how the main elements of their equity investment strategy are consistent with the profile and duration of their liabilities and how those elements contribute to the medium to long-term performance of their assets.
Asset managers must disclose to institutional investors how their investment strategy and its implementation contribute to the medium to long-term performance of the assets of the institutional investor or of the fund.
Additional transparency requirements for institutional investors and asset managers aim at promoting the development of longer-term investment strategies and committing the asset managers to act in the best medium- to long-term interest of the institutional investor and its final beneficiaries.
Proxy advisors (providing research, advice and recommendation on how to vote) are subject to transparency requirements. They have to report on the application of the code of conduct which they apply or explain to the public why they do not apply such a code.
Implementing Regulation (EU) 2018/1212 lays down minimum requirements for:
identifying shareholders;
transmitting information; and
facilitating the exercise of shareholders’ rights.
Directive 2007/36/EC has applied since 3 August 2007. The amended rules of Directive (EU) 2017/828 have applied since 9 June 2017 and had to become law in the EU countries by 10 June 2019.
DOCUMENTS
Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies (OJ L 184, 14.7.2007, pp. 17-24)
Successive amendments to Directive 2007/36/EC have been incorporated into the original document. This consolidated version is of documentary value only.
Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement (OJ L 132, 20.5.2017, pp. 1-25)
Commission Implementing Regulation (EU) 2018/1212 of 3 September 2018 laying down minimum requirements implementing the provisions of Directive 2007/36/EC of the European Parliament and of the Council as regards shareholder identification, the transmission of information and the facilitation of the exercise of shareholders rights (OJ L 223, 4.9.2018, pp. 1-18)