EU Directive on Shareholder Voting Primed for Summer Adoption

The European Commission expects to adopt a Directive on the exercise of shareholders' voting rights this summer, according to Commissioner for the Internal Market Charlie McCreevy. In remarks to the European Association of Listed Companies (EALIC), he said that the objective of the Directive is to eliminate practical obstacles which make it difficult for non-resident shareholders to exercise their voting rights. Separately, he indicated that the Commission has decided to refrain from requiring disclosure of the voting policies of institutional investors.

Interestingly, the commissioner believes that the takeover battle at ABN/AMRO marks a watershed for shareholder rights and activism, not only in the Netherlands, but also throughout the EU. The salutary lesson is that, whatever the outcome might be, in future mergers and takeovers company management will be very attentive about getting a deal that their own shareholders will accept before deciding themselves what is best for the real owners of the company.

While non-resident shareholders hold about 30% of the capital of listed companies in the EU, noted the official, they face serious problems when they want to exercise their voting rights. These problems are due in part to the complexity of the cross-border holding of shares via chains of intermediaries and in part to the fact that national legal systems cater mainly to resident shareholders. The Directive introduces minimum standards such as a minimum convocation period for general meetings, a simplification of the proxy voting system and the abolition of all forms of share-blocking and of legal obstacles to electronic voting.

One of the issues that still needs to be resolved, however, is the role of financial intermediaries in the voting process. Not all shareholders have access to voting services, explained the commissioner. since there are many local custodians that do not offer such services. Even where, in theory, such services are provided, problems in the chain of intermediaries often prevent the process from working smoothly. This issue will be addressed in a future recommendation.

In tabling the issue of the disclosure of the voting policies of institutional investors, Comm. McCreevy noted hesitation on EU responses to the initial consultation in this area. While the Commission considers this issue a priority, it wants to study how it is working out in jurisdictions requiring disclosure. Institutional shareholders collectively hold a huge proportion of the capital of listed companies, he said, which puts additional duties on them towards the companies they invest in as well as towards the people whose money they invest.