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Netherlands' new draft code for engagement, responsible ownership

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Eumedion, the Dutch platform for corporate governance and sustainability, has presented a draft Stewardship Code for investors focusing on engagement and responsible ownership at Dutch listed companies.

The code is to replace its “Best Practices for Engaged Share-ownership”, which have been applied by almost all of its participants, predominantly Dutch but also foreign pension funds, insurers and asset managers. In total Eumedion has 65 members representing €5trn of assets.

The forum said it had transformed the best practices into an official code of conduct in anticipation of new European obligations and responsibilities for institutional investors, which will come into force as of June 2019.

The draft emphasises informed voting and investors’ willingness to conduct a constructive dialogue with companies, other shareholders and stakeholders.

In addition, signatories are expected to be transparent on their voting and engagement policy, its implementation, as well as their full equity holdings.

Among the most striking elements of the code’s 11 principles is a rule requiring companies to demand the return of shares loaned to shortsellers prior to an annual general meeting (AGM) with controversial voting issues on the agenda. This way the shortseller can’t use the borrowed voting rights against the interest of the company.

In addition, if an investor has a short position exceeding its long-term holdings, it must refrain from voting.

Rients Abma, Eumedion’s director, told Dutch financial daily Het Financieele Dagblad (FD) that the new code would broaden shareholders’ responsibilities.

“The shareholder must be willing to not only engage with the board, but also get to know the feelings of important stakeholders in case of important issues, such as remuneration policy or takeovers,” Abma said.

This means consulting the works council and clients as well as suppliers. Ahead of engagement, the investor must also be prepared to show the company its full position, including derivatives, according to the new principles. If an investor votes against a proposal during an AGM, the company’s board is entitled to demand a reason.

Commenting on the draft code, the association of securities-issuing institutions (VEUO) indicated that the new code offered little added value relative to the pending European directive.

”We would have liked a further elaboration of sustainability and long-term value creation,” the FD quoted Harm-Jan Kluiver, the secretary of VEUO, as saying.

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