What is the purpose of the Shareholder Rights Directive II?

The Shareholder Right Directive II establishes the requirements in relation to the exercise of certain shareholder rights attached to voting shares in relation to general meetings of companies which have their registered office in a Member State and the shares of which are admitted to trading on a regulated market situated or operating within a Member State.

It also establishes specific requirements in order to encourage shareholder engagement, in particular in the long term. Those specific requirements apply in relation to:

  • shareholder identification
  • transmission of information
  • facilitation of exercise of shareholders rights
  • transparency of institutional investors, asset managers and proxy advisors, directors’ remuneration
  • related party transactions

What is the background of the Shareholder Rights Directive II?

  • 09 April 2014, the European Commission published a proposal (COM 2014/213 final) to amend the Shareholders’ Rights Directive (2007/36/EU) (the Proposal).
  • The European Commission aimed with the Proposal to encourage effective and sustainable shareholder engagement in listed companies.
  • 16 December 2016, the European Council, the European Parliament, and the European Commission reached a tentative agreement on the definitive text of the Proposal.
  • 14 March 2017, the European Parliament adopted its position at first reading.
  • 23 March 2017, the Council formally adopted also the directive.
  • 17 May 2017, the European Parliament and Council agreed on an amendment to the Shareholders Rights Directive (2007/36/EU) to further encourage long-term shareholder engagement.
  • 9 June 2017,  EU directive (2017/828/EU) entered into force
  • 10 June 2019, the deadline for the EU Member States to implement the amended Directive in their national legislation.

What are the changes considerate in the implementation of the Shareholder Rights Directive II?

  • Identification of shareholders and transmission of information to facilitate the exercise of shareholders’ rights.

The companies will have the right to identify their shareholders. It will oblige the chain of intermediaries to transmit relevant information and to facilitate the exercise of shareholder rights including voting. For legal identities also their unique identifier, where available, will be transmitted. Member States may decide that the request for identification only relates to shareholders whose percentage of the shares does not exceed 0.5% or voting rights.

The shareholders’ personal data will be protected throughout the chain.

Intermediaries will be required to transmit the voting information from the shareholder to the company. Companies will be required to confirm the votes cast at the request of the shareholder. Shareholders could, therefore, be certain that their votes have effectively been cast, including across borders.

  • Enhancing transparency and engagement of institutional investors, asset managers, and proxy advisors.

The Directive will require institutional investors and asset managers to formulate a long-term engagement policy that defines how they monitor the investee companies and focus on investment strategies and social and environmental issues. They will also be required to disclose to the public their engagement policy including its implementation and results.

In addition, institutional investors and asset managers will have to account for the mutually agreed investment policy and the execution of the mandate. If they decide not to comply with the mandate then it will be necessary for them to provide an explanation as to why this is the case. The approach is similar to corporate governance codes and stewardship codes. There is no requirement to reveal any confidential information.

As institutional investors and asset managers have a considerable number of companies in their portfolios, the support of proxy advisors plays a relevant role in providing useful voting recommendations, especially in case of cross-border shareholdings as well as in improving shareholder engagement.

The Directive will require proxy advisors to disclose certain information about the ways in which they prepare voting recommendations and report in respect of their compliance with the code of conduct they apply. This is to ensure reliable and high-quality recommendations and to enhance trust in such services.

  • Influence of Shareholders on the remuneration policy for managing directors

Say-on-Pay is an important aspect of the new Directive. The shareholders will have the right to approve the remuneration policy and to vote on the remuneration report, which describes how the remuneration policy has been applied in the last year.

The shareholders may vote on the remuneration policy at least once a year at the general meeting and if there is a material change. The vote on the remuneration policy will in principle be binding, which means that companies are only able to pay remuneration on the basis of the policy approved by shareholders. Immediately after the vote, the remuneration policy must be disclosed on the company’s website.

The Member States will, however, have the possibility to opt for an advisory vote. This means that companies are allowed to apply a remuneration policy which has been rejected by shareholders but are required to submit a revised policy at the next general meeting.

The vote on the remuneration report will be advisory. Member States will also have the possibility to allow companies to replace this vote by a discussion at the general meeting.

The listed companies will be required to set up a remuneration policy for managing directors, taking special provisions into account, such as an explanation of how the remuneration policy contributes to the long-term interests and the sustainability of the company.

Member States may allow listed companies to deviate from the remuneration policy in exceptional cases.

  • Improvement of transparency and influence of shareholders in relation to related party transactions.
  • Facilitating the exercise of rights flowing from securities for investors
Last Updated: 1 January 2024