Considerable upgrades to the Shareholders’ Rights Directive of 2007 are due to be unveiled by the European Commission in April.
The revised legislation’s aim is to encourage institutional fund managers to increase their investments in equities across the borders of the EU.
According to a leaked version of the upgrade, specific objectives will centre on increasing asset managers’ level of engagement with the companies in which they invest.
It will also cover directors’ remuneration, transparency, the advice of proxy advisors and the cross-border transmission of data.
The upgrade’s explanatory memorandum blames short-termism on a “misalignment of interests between asset owners and asset managers”.
It also complains of investors facing difficulties in exercising their rights, especially if their securities are held cross-border.
The text refers to insufficient focus on the long-term performance of companies, arguing that too much attention is given to share-price movements and the structure of capital market indices.
This “leads to sub-optimal returns for the end beneficiaries and puts short-term pressure on companies,” it says.
It recommends that institutional investors and asset managements develop a policy on shareholder engagement that “determines, amongst others, how they integrate shareholder engagement in their investment strategy”.
The new version of the Commission’s directive also brings in entirely new sections.
For instance, there is one on ‘identification of shareholders in cross-border voting’, and another on ‘delegated acts and sanctions’.
Under the latter, it is member states that are to “lay down the rules on penalties for infringements”.
Commenting in public on the forthcoming legislation, Carlos Maravall Rodriguez, a Commission financial analyst, said work on the revisions aimed to harmonise best practice and protect the rights of investors across the EU member states.
Answering questions at a conference, Rodriguez said the Commission’s overall aim was “to make equity more attractive across the board”.
This would include institutional as well as private investors, by working via initiatives that touch on both spheres.
At present, only “independent investors” are doing something to control company management of listed companies, he said.
Chantal Hughes, Commission spokeswoman, said the EC’s presentation of the new proposal was set for April.
She described the revisions as fitting in with “our wider objective of improving the environment for the long–term financing of the European economy”.