New EU rules on shareholders' rights on the way
The negotiations about the proposal to amend the Directive on shareholders' rights have been concluded at EU level and the amendments are expected to be adopted in spring 2017. The object of the proposed amendments to the Directive on shareholders' rights (Directive 2007/36 EC) is to encourage corporate governance in listed companies by making it easier for shareholders to exercise active ownership and to make share trading more transparent.
Remuneration policy and remuneration report
The proposal gives the shareholders in listed companies a right to a say on the remuneration policy with respect to the remuneration of the company management. Companies are to draw up and publish a policy on the remuneration of members of the board of directors and the executive board that lays down the detailed rules on fixed and variable remuneration of members of management. Shareholders will be given a right to vote on the remuneration policy at the general meeting. Afterwards, the remuneration must comply with the adopted remuneration policy.
At this point in time the rules on drawing up a remuneration policy are only included in the Recommendations on Corporate Governance. Accordingly, Danish listed companies have not yet been subject to a statutory obligation to draw up a remuneration policy (because of the "comply or explain" principle of the Recommendations where reasons are to be given for any non-compliance).
The proposal also means that companies must present a remuneration report that is to contain information about the individual remuneration of members of management. The shareholders will be given a right to participate in a guiding vote on the remuneration report at the company's general meeting. It means that the report is not binding on the company, but gives the management an insight into the shareholders' position on the remuneration.
Identification and involvement of shareholders
In order to make it easier for shareholders to exercise active ownership the proposed amendments contain a number of rules on the identification and involvement of the shareholders in the company. The proposal contains rules on intermediaries' (meaning suppliers of services in relation to keeping shares, administering shares or maintaining securities accounts on behalf of shareholders or other individuals) obligation to identify shareholders and disclose shareholder information to the company at the company's request in order to make it easier for shareholders to participate in general meetings.
Policy for shareholder engagement
According to the proposal, institutional investors and asset managers are to publish a policy for shareholder engagement that is to contain:
- An account of the integration between shareholder engagement and the chosen investment strategies
- A description of the considerations made in relation to the investment's social and environmental consequences
- Information about any conflicts of interests
The asset managers and the institutional investors will also be subject to an obligation to publish a report on an annual basis containing information about the implementation of and the compliance with the policy as well as a description of any exercised voting rights in listed companies and a description of any services received from proxy advisors. In this connection, the institutional investors and asset managers are subject to a "comply or explain" principle which means that reasons must be given if the annual reporting is not done or if the policy is not made public.
It is noted in this connection that the Committee on Corporate Governance in Denmark has recently published Recommendations for Active Ownership aimed at Danish institutional investors that have equity investments in Danish listed companies. The Committee recommends that these investors publish an active ownership policy containing, among other things, a voting policy and that they publish whether/how they cast votes at general meetings in the listed companies. The Recommendations are subject to the above "comply or explain" principle, which entails that must be given if the Recommendations are not followed.
Transactions with related parties
Finally, the proposal contains rules on the approval and publication of transactions between the company and its related parties. According to the proposed amendments, the Members States must make sure that in future any material transactions with related parties are approved by either the company's board of directors (according to a procedure to be agreed on in detail) or by the shareholders at the general meeting and such transactions must subsequently be made public. It will be defined in detail in connection with the implementation of the rules when a transaction is big enough to be a material transaction. It is noted that such rules do not cover any usual commercial transactions with related parties made on market terms.
Plesner follows the development
The final adoption of the proposal by the European Council and the European Parliament is expected to take place in spring 2017. In that connection, we will send out a newsletter with a detailed description of the adopted amendments as well as information on the implementation process in Denmark.