With the EU Shareholder Rights Directive now in force, the signatories of the Best Practice Principles for Shareholder Voting Research have announced the outcome of its two year review process with the publication of the 2019 Best Practice Principles For Shareholder Voting Research.

The updated Principles were developed within the framework of a structured Independent Review Process which referred to the:

  • EU Shareholder Rights Directive II (“SRD II”);
  • Latest global stewardship codes; and
  • ESMA’s 2015 Follow-Up Report on the Development of the Best Practice Principles for Providers of shareholder voting research and analysis (“2015 ESMA Follow-Up Report”).

Best Practice Principles for Shareholder Voting Research 2019 – The Key Takeaways

SRD II requirements on transparency of proxy advisors have been addressed by updated Principles and Guidance that include:

  • Annual public disclosure by each BPP Signatory to the Principles of:
    • The Signatory’s commitment to the Code;
    • How the BPP Signatory applies and complies with this code of conduct;
    • The accuracy and reliability of their research activities;
    • Prompt identification and disclosure to clients of any actual or potential conflicts of interests or business relationships that may influence the preparation of their research, advice or voting recommendations; and
    • The steps taken to eliminate, mitigate or manage the actual or potential conflicts of interests.

2017 Public Consultation feedback regarding potential ‘over influence’ of proxy advisors has been addressed by:

  • Updates with regard to the Scope of the Principles highlighting the importance of delineating investor and proxy advisor responsibilities.

Additional feedback from the 2017 Public Consultation includes updates regarding:

  • How BPP Signatories alert clients to any material factual errors or revisions to research, analysis or voting recommendations after research publication;
  • Potential and actual conflict avoidance or management;
  • Disclosure of dialogue with issuers, shareholder proponents and other stakeholders.

The 2015 ESMA Follow-Up Report recommendations for improved governance and oversight of Principles have been addressed by:

  • New BPP Oversight Committee;
  • New reporting arrangements;
  • New monitoring arrangements.

Commenting on the launch of the updated Principles, Dr. Danielle A.M. Melis MBA, said: “As Independent Review Chair, I am confident that the Review process has resulted in a thoroughly reviewed, globally applicable, updated set of Principles and Guidance. In particular, this includes new governance, monitoring and reporting structures in which stakeholders can recognise the ambition of the BPPG to act in accordance with the highest standards and to be transparent about their activities and policies.”

As part of the process, Dr Melis has also produced Independent Review Chair Report detailing the topics discussed in the Review Process and the rationale for the changes made to the original principles that date back to 2014.

Proxy Advisor Responsibilities and Accountabilities

In light of ongoing market mis-perceptions regarding the alleged “undue influence of proxy advisors” and/or alleged “robo-voting” on the part of investors, a key area of the updated Principles is delineation of the scope of proxy analysts’ responsibilities versus those of investors.

With the introduction of the Shareholder Rights Directive, new regulations are being introduced across EU member states, and as well as the UK through the FCA, which specify the responsibilities and disclosure requirements with regard to investors’ use of proxy advisory services. 

Article 3g of SRD II requires that institutional investors and asset managers must develop and publicly disclose an engagement policy and on an annual basis disclose how their engagement policy has been implemented, including a general description of voting behavior, an explanation of the most significant votes cast and the use of the services of proxy advisors.

The updates to the Principles are complementary to the spirit of these evolving regulatory and stewardship frameworks supporting good practice on the part of investors with regard to the responsible and transparent exercise of shareholder rights, including the use of proxy research or advisory services.

Speaking on the launch of the Principles, Dr Melis said: “I am particularly proud of how the founding signatories to the Best Practice Principles, the current members of BPPG, worked together in the Review Process, on a voluntary and constructive basis. They respected investor as well as issuer concerns as well as differences in various service provider business models notwithstanding being competitors in their respective markets, in order to promote the integrity and efficiency of shareholder voting research services, which play an important role in investors exercising their stewardship rights and responsibilities effectively.”

Commenting on the updated Principles, Sarah Wilson, CEO of Minerva, the parent of The Manifest Voting Agency, a founding signatory of the Principles said: “Under Dr. Melis’ stewardship the Principles have taken a significant step forward. We would particularly like to thank Danielle for her dedication and professionalism in developing the updated Principles. Despite the conflicting demands of the many stakeholders, she has steered a careful course with a strong emphasis on conducting a robust and transparent Review process, alignment of interests and a focus on common ground.”

If you would like to know more about how Minerva and Manifest can help you meet the requirements of the Shareholders Rights Directive, please contact hello@minerva.info

[1] See page 12 of 2019 Best Practice Principles for Shareholder Voting Research & Analysis

Last Updated: 22 July 2019
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