Shareholder Rights Directive

The European Union has adopted the Directive on shareholders rights, which is an attempt to implement minimum standards across the EU. A number of the provisions are less stringent than UK law. However, there are parts that will lead to changes in companies’ relationship with their shareholders from current UK practice.

The key provisions are:

• A minimum notice period for general meetings (GMs) of 21 days. This can be reduced to 14 days where shareholders can vote electronically and the GM agrees.
• Internet publication of the convocation and GM documents at least 21 days before the GM.
• The right for shareholders to ask questions and the obligation for companies to answer them.
• Disclosure of voting results on the issuer’s website.

The UK government has until 3 August 2009 to implement the Directive. BERR currently is consulting on the implementation of the Directive and the making of related changes to legislative provisions on shareholder rights in the Companies Act 2006. The deadline for responses is 30 January 2009. Click here to find out more from BERR's website.

For a summary and full details of the Directive from the European Union's website click here.

Two important objectives in relation to shareholder rights are to increase shareholder engagement by treating direct and indirect shareholders similarly, and to encourage the use of electronic communication with investors. This will enable issuers to provide annual reports (either in electronic form or hardcopy) directly to shareholders, whether the investors hold their shares through a nominee or directly in their own name for example. Alongside this, there will be an assumption for issuers that investors have elected to receive communications in an electronic form, rather than a hardcopy in the event they do not specify a preference. The ability to provide these types of documents in electronic form should substantially reduce costs.

It is important to bear in mind the underlying issue here. If corporate governance is to succeed in its present format (i.e. comply or explain) and be accepted across the EU as such, there has to be provision for 'shareholder engagement'. The alternative is the likelihood of a more prescriptive/legalistic governance approach dictated by Brussels.