Probably the most un-noticed consequence of the battle around the ill-fated Royal Bank of Scotland acquisition of ABN-AMRO has been the subsequent limitation of shareholders’ rights in the Netherlands.

At the start of July a number of significant amendments Dutch company law were introduced which will make it significantly harder for shareholders to table their own resolutions. While some commentators have talked about the rules “strengthening corporate governance” and “curbing shareholder activism” the real losers will be the concerned and active shareholders wanting to protect or enhance their investments, not corporate raiders.

The background to the changes dates back to 2007 when the Dutch Corporate Governance Monitoring Committee reacted to a shareholder campaign run by TCI which was, at that time, a 2% owner of ABN AMRO. For those needing a quick refresher of what subsequently transpired, the ABN-AMRO Wikipedia page has as a fairly succint summary of the bank’s long history of shareholder shake-ups and the circumstances surrounding the takeover and ultimate Dutch government bail out.

In what might some might call a retaliatory act against a fairly straightforward stewardship intervention by TCI, The Corporate Governance Act and the Financial Markets Act 2013 now includes a number of new rules which, had they been in place in 2007, would have stymied TCI’s overtures. While the new rules are within the scope of Shareholders’ Rights Directive, their spirit is already being viewed as regressive.

The New Rules:

• Only shareholders 3% or more of the company will have the right to table resolutions at meetings; the current limit is 1%.
• Requisitionists will be required required to disclose their full economic interest (long and short) for publication on the target company’s website.
• Beneficial ownership disclosure threshold will be reduced to 3%.
• New procedures for companies to trace the identity of their ‘ultimate investors’.
• Passing on information – shareholders with 1% or €250,000 of shares alone or in combination with others will have the right to ask the company to pass agenda or meeting related materials on to other shareholders. However, unlike the German system of AGM “Counter-Motions” the company will have the right to refuse if they deem the information to be “incorrect or misleading”, a fairly subjective notion at best given the differences of opinion which can exist between companies and their owners.

A key point for shareholders to consider is that if the previous lower threshold of 1% is still in the articles of association it will require shareholder approval to increase the threshold. Whether global investors have enough votes to block the change given the use of Stichting votes which ensure 100% turnout in favour of management remains to be seen.

There are also practical operational implications for investors to consider on the complex shareholder ID proposals. The idea behind the rule is that the company can track through the entire chain of custody until the last link, the investor, is identified. The idea of the “ultimate beneficial owner” is something that has been a consistent thread through Dutch discussions on proxy voting and corporate governance reform at EU level, unfortunately, it is actually a fairly flawed concept as it fails to recognised the complexities of the interplay between global custody, sub-custody, trust law and fund manager mandates

• The shareholder ID tracing will apply to Dutch listed companies and foreign companies with a listing on a Dutch stock market.
• In the 60 days prior to a shareholder meeting, a company may request Euroclear Netherlands or any of its member institutions or other intermediaries to provide the names and addresses of those investors for whom they administer shares or depository receipts together with details of their positions.
• Shareholders with an interest of 10% or more – together or jointly – also have the right to trigger the ID procedure – but only in the case of shareholders holding 0.5% or more. The 0.5% cut off is said to be designed to protect retail shareholders but will probably also capture smaller institutional investors too.
• The bank or other institution receiving the  request must reply within three working days and, if possible, supply the necessary information. If no reply is forthcoming, the company may apply to a district court for an order directing compliance. It appears that the Act initially included a sanction for non-compliance of a three-year suspension of the voting rights on the shares in question, thankfully this has been dropped.
• The company has an obligation to keep the ownership information confidential and protect it from loss and unlawful processing.