Many listed companies will remember the flurry caused when the UK implemented the Shareholder Rights Directive in 2009. So will the changes to that Directive that are currently being negotiated cause an equal stir? At first blush you might think not but, as usual, the devil is in the detail, which is still being negotiated.
The changes aim to contribute to long-term sustainability, enhance cross border voting for shareholders, introduce a comply or explain approach to stewardship and strengthen shareholders’ rights in relation to directors’ pay and related party transactions. However, as those who helped shape the UK approach to shareholder approval of the remuneration policy for directors know, coming up with something companies can sensibly provide and shareholders want and will use takes hours of detailed discussions. Having to make changes not long after the UK requirements were introduced and the proposal for standard requirements on how information is presented may not be attractive.
Some provisions are aimed at letting companies identify their shareholders, getting intermediaries to provide details to the company, pass on information provided by the company and facilitate the exercise of rights such as voting rights. UK companies know who their registered shareholders are and so this should not cause concern but there is a worry that the Directive will impose obligations on nominee shareholders and extend to beneficial owners. If this were the case or if the Directive wording changes during negotiations there could be serious consequences.
The UK Listing Rules already provide a related party regime that mostly works well in practice. The proposed Directive definition of a related party is based on international accounting standards and catches transactions with members of the group and joint venture parties (not just substantial shareholders, directors and their respective associates). Without changing the definition or some sensible exemptions there will be significant problems.
Many asset managers and institutional investors have already signed up to the Stewardship Code. Although the Commission has said its proposals adopt a comply or explain approach in requiring them to have a policy on shareholder engagement the wording initially proposed is not as clear as it could be on this. The Investment Management Association has welcomed the objectives of the proposed changes but questions why institutional investors should have to make their arrangements with asset managers public. Companies may share their concerns that the requirement to disclose the results of their engagement annually is too prescriptive and could mean that disclosure of engagement at an early stage in a sensitive situation could undermine the process of engagement.
Discussions on the changes are continuing and there are still many areas to be sorted out. ICSA participates in the BIS Stakeholder Group on the Directive – so it is not too later to make sure any concerns you have are on the radar.
|Professor Vanessa Knapp OBE|