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EU negotiators reach agreement on revised Shareholder Rights Directive

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Trilogue agreement has been reached on a revised version of the EU Shareholders’ Rights Directive, under which institutional investors will have to disclose a policy on shareholder engagement or explain why they do not have one.

The new directive was informally agreed on Thursday by negotiators from the European Parliament, Council and Commission.

On Friday, COREPER, the EU member states’ committee of permanent representatives, endorsed the agreement and it is due to formally approve the agreement this week.

A spokesperson at the Council told IPE a provisional text of the revised directive would probably be available this week.  

In a statement, Sergio Cofferati, the Italian MEP who has been acting as the rapporteur for the directive, said he believed the agreement reached was “a very positive one”.

“The measures agreed upon will help to steer investments towards a more long-term orientated approach and ensure more transparency for listed companies and investors,” he added.

Lucia Žitňanská, minister for Justice of Slovakia, which has the presidency of the member states’ body, said the revised directive would help tackle “excessive short-term risk-taking by managers”.

The rules establish requirements and rights for shareholders and companies, as well as other actors in the investing chain, such as proxy advisers.

The amendment of the directive was first proposed by the Commission in April 2014.

According to law firm Frank Bold, it was later “extensively” revised by the European Parliament’s Committee on Legal Affairs and, after a compromise text was adopted in a parliamentary plenary vote in July 2015, then “blocked in protracted trilogue negotiations”.

Under the new rules, institutional investors will be required, on a “comply-or-explain basis”, to develop and disclose a policy on how they intend to engage with investee companies.

If they do not do so, they will have to explain why.

Other requirements include the right for shareholders to vote on the remuneration policy for a company’s directors.

This, according to a statement from the EU Council, “should contribute to the overall business strategy, long-term interests and sustainability of the company and should not be linked to short-term objectives”.

A spokeswoman at Frank Bold said it was important to note that directors’ remuneration packages would “have to include non-financial indicators, in additional to traditional financial KPIs, and explain how it benefits the long-term interests of the company”.

The Commission had proposed that the vote on pay should be binding, but, in 2015, MEPs voted to let member states decide if shareholder votes on pay should be binding or advisory.

According to the statement from the European Parliament, the next steps are for its Legal Affairs Committee to approve the negotiators’ agreement in a vote in January, with a final plenary vote scheduled for March.

The Council will also have to adopt the final text next year, and, after the directive is officially published, member states will have two years to transpose it.

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