Internal Market Commissioner Charlie McCreevy

The European Commission has presented a proposal for a Directive to facilitate the cross-border exercise of shareholders' rights in listed companies, through the introduction of minimum standards. The proposed Directive seeks to ensure that shareholders, no matter where in the EU they reside, have timely access to complete information and simple means to exercise certain rights – notably voting rights – at a distance.

Internal Market and Services Commissioner Charlie McCreevy said: “Shareholders need to be able to get relevant information on time and vote without encountering unnecessary obstacles, wherever they are in the EU. Otherwise they can't exercise their influence properly and make sure that management is acting in their best interests. Our proposals will introduce a range of key minimum standards to make this happen – using modern, reliable technology. All this will help to strengthen the role of shareholders and spread EU investing.”

On average, about one third of the share capital of EU listed companies is held by non-residents. Key obstacles to voting faced by non-resident shareholders include share blocking, insufficient or late access to information, and overly burdensome requirements on distance voting.
Two public consultations were launched in September 2004 and May 2005. Respondents to both consultations supported the introduction of minimum standards at EU level for the organisation of General Meetings and the exercise of shareholders’ rights. Results of this consultation are available here

After having carried out a comprehensive impact assessment the Commission proposes the following minimum standards which would eliminate the main obstacles in the cross-border voting process and enhance certain other rights of shareholders:

• General Meetings should be convened with at least one month's notice. All relevant information should be available on that date at the latest, and posted on the issuer's website. The meeting notice should contain all necessary information.
• Share blocking should be abolished and replaced by a record date which should be set no earlier than 30 days before the meeting.
• The right to ask questions should be accessible to non-residents. The maximum shareholding thresholds to benefit from the right to table resolutions should not exceed 5%, in order to open this right to a greater number of shareholders while preserving the good order of general meetings.
• Proxy voting should not be subject to excessive administrative requirements, nor should it be unduly restricted. Shareholders should have a choice of methods for distance voting.
• Voting results should be available to all shareholders and posted on the issuer's website.

Background

The Commission’s May 2003 Action Plan to modernise company law and enhance corporate governance (IP/03/716, MEMO/03/112) contains a set of initiatives aimed at strengthening shareholders' rights, reinforcing protection for employees and creditors, increasing the efficiency and competitiveness of European business and boosting confidence on capital markets.

Public consultation on the Action Plan as a whole, which ended in mid-September 2003, showed a strong consensus behind the main measures. This exercise on minimum standards for shareholders’ rights is the sixth consultation arising from the Action Plan.

Frequently Asked Questions (FAQs) on shareholders’ rights

Why do we need a Directive in this field?

The responses to the two public consultations that were carried out in September 2004 and in May 2005 showed clearly that market participants were in favour of simplifying the cross-border voting process and reducing administrative burdens. In order to achieve this objective throughout the European Union we need to set up a basic framework that focuses on key principles. The most efficient way to do this is through a Directive abolishing the major constraints (such as share blocking).

The proposed Directive applies only to listed companies. Can Member States extend its rules to non-listed companies?

Member States are free to extend to non-listed companies all or some of the provisions contained in the Directive. Furthermore, the proposed Directive provides only for a minimum harmonisation so that Member States also have the possibility to impose more stringent requirements than those provided for in the Directive on the listed companies falling under their jurisdiction.

Why are UCITS excluded from the scope of the Directive?

UCITS are dealt with under specific rules, in particular in the Council Directive on the undertaking for collective investment in transferable securities (UCITS) (Directive 85/611/EEC). It would therefore not be appropriate to set up additional rules for them in this Directive.

Why does the proposed Directive set the deadline for inviting to a general meeting and making available the documents at a minimum of 30 calendar days before the general meeting?

The objective pursued is that all shareholders, no matter where in the EU they reside, should be able to cast informed votes. This not only requires that they receive complete information, but also that they receive it on time. This often proves to be a challenge for non-resident investors, who typically hold their shares through accounts opened with securities intermediaries who, in turn, hold accounts with other securities intermediaries and central securities depositaries in other jurisdictions. In many cases, direct communication between the company and the investor is not possible. Instead, the information has to be passed down the chain of intermediaries, which takes time. One month appears to be the adequate period of time to allow investors to receive the information, to take an informed decision and to pass on their vote back to the issuer. A one-month notice period is already in force in a number of EU Member States. It should, furthermore, be noted that for Extraordinary General Meetings related to takeover bids the Directive on takeover bids contains a special rule that sets the notice period at 14 days. This rule remains unaffected by the present proposal.

Will the right of shareholders to ask questions in or ahead of the general meeting not cause problems to the organisation of companies' general meetings?

The right to ask questions is a basic right of shareholders and an essential element in order to enable them to take informed decisions. Issuers should therefore be obliged to answer these questions. However, the proposed Directive leaves Member States a wide margin of flexibility in order to provide for measures to avoid the abuse of this right by certain shareholders (e.g. a discretion of the Chairman to reject certain questions during the meeting, or the introduction of a deadline within which questions ahead of the meeting have to be asked, in order to allow the company time to prepare the replies).

Furthermore, the proposed Directive clarifies that there is no obligation to provide an answer for questions where the relevant information has already been made available by the issuer on his internet site in the form of "frequently asked questions".

Why does the proposed Directive not oblige issuers to allow all shareholders to participate and/or to vote in a general meeting by electronic means?
It is true that electronic means make it much easier for active shareholders to participate actively in a general meeting. However, technology is not advanced enough to permit active electronic participation in all cases with a sufficient guarantee of security. Furthermore, such facilities are costly to introduce. Therefore, the proposed Directive aims only at obliging Member States to remove from their national laws all obstacles hindering the use of such electronic means while leaving it to issuers to decide whether to make use of this possibility.

What objectives is the proposed Directive trying to achieve with the proposed rules on proxy voting?

Proxy voting is a simple and efficient way for shareholders to exercise their rights if they cannot or do not want to participate at a general meeting in person. However, restrictions currently exist in some Member States concerning the person who can hold a proxy (limitation to family members, other shareholders etc), the number of proxies a proxy holder may hold, the form in which a proxy can be granted (notarisation etc.) or the rights that proxy holders have in general meetings. The proposed rules on proxy voting aim at removing these limitations and ensuring that proxies benefit from the same rights as the shareholders they are representing, in particular the rights to speak and to vote at general meetings, unless the shareholder has decided otherwise.

Why doesn't the Directive introduce a uniform record date at EU level?

The second consultation showed almost unanimous support for abolishing share blocking EU wide and replacing it by a record date. However, it has also revealed that there are differing approaches in Member States as to what the ideal record date would be. The proposed Directive, therefore, establishes the principle of a record date and determines a maximum period within which the record date must be set. But the exact determination of the date is left to the Member States in order to allow for the necessary flexibility.

However, all issuers within a particular Member State will have to apply the same date, so that investors do not have to deal with a different record date for each issuer. Furthermore, the Commission will publish all record dates applicable in the Member States to give investors easy access to this information.

What is the relationship between this Directive and the Transparency Directive (Directive 2004/109/EC)?

Article 17 of the Transparency Directive deals with information and documents relating to general meetings. It is true that it partially overlaps with the proposed Directive. However, Article 17 only requires the issuer to make this information and these documents available in his home Member State and does not mention when and how these are to be made available. As a result, the general provision in Article 17 of the Transparency Directive does not address the specific difficulties of non-resident shareholders in obtaining access to information prior to the general meeting. In order to avoid that provisions having the same subject appear in different legal acts, we propose the repeal of some parts of Article 17 of the Transparency Directive.