Council of Institutional Investors

Eye on International
Proposed Revisions to Shareholder Rights Directive Spark Controversy
Thursday, January 29, 2015
by: Matthew Frakes

Section: CII Governance Alert

At last week’s meeting of the European Parliament’s Legal Affairs Committee lawmakers engaged in intense debate over proposed changes to the European Shareholder Rights Directive. All of the changes proposed since the directive was issued are intended to promote long-termism and active shareholding, but some have sparked enough controversy to fuel uncertainty about passage of a draft law when it comes to a vote March 24.

The clashes among lawmakers center on executive compensation and shareholder voting rights. According to the European Commission, the revisions are intended to address “insufficient engagement” of institutional investors and asset managers and gaps between pay and performance for both directors and management, among other concerns. The overarching goal of the proposal, the Commission writes, is to “better hold the management of the company to account and act in the long-term interests of the company.”

One of the chief features of the revised directive would be a mandatory binding say-on-pay vote. While there would be no cap set on executive compensation, each individual company’s remuneration policy would need to include a maximum level for executive pay and explain how the policy contributes to the company’s long-term interests.

Some of the other disputed revisions would allow shareholders to access data on companies’ ownership and voting rights, allow employees to express their views on compensation policies before they are put to a shareholder vote, and offer “loyalty incentives” in the form of additional voting rights and other benefits to investors holding shares for at least two years. This last proposal conflicts with the principle of “one share, one vote”—central to CII’s member-approved corporate governance policies.
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