The Current Debate on the Proposed Directive on the Encouragement of Long-Term Shareholder Engagement in European Listed Companies in Light of the Recent History of the Initiatives of the European Union Concerning Corporate Governance

aut Corrado Malberti

Download pdf []

In the aftermath of the financial crisis, the reactions of the European Union to the problems raised by corporate governance were slow and principally addressed to the reform of the governance of financial institutions. It was only in April 2014 that the European Commission presented a proposal for a directive on the encouragement of long-term shareholder engagement addressed to all listed companies. This proposal, among other measures, is intended to grant to general meetings the right to vote on related-party transactions and on remuneration policies.

The Commission's proposal has been criticized by legal commentators as being based on wrong theoretical assumptions on the virtues of shareholder engagement, and as not being effective in achieving its intended goals. In spite of these first reactions, the draft versions of the directive currently under discussion before European institutions do not completely challenge the soundness of the strategy pursued by the Commission, and they simply try to further limit the scope and the impact of the proposed measures.

I argue that, considering the evolution of the academic and political debate, the expected impact of the Commission's proposal, if finally adopted, will be modest, and, probably, it will not achieve its intended shareholder empowerment goals.

In the aftermath of the financial crisis, the reactions of the European Union to the problems raised by corporate governance were slow and principally addressed to the reform of the governance of financial institutions. It was only in April 2014 that the European Commission presented a proposal for a directive on the encouragement of long-term shareholder engagement addressed to all listed companies. This proposal, among other measures, is intended to grant to general meetings the right to vote on related-party transactions and on remuneration policies.

The Commission's proposal has been criticized by legal commentators as being based on wrong theoretical assumptions on the virtues of shareholder engagement, and as not being effective in achieving its intended goals. In spite of these first reactions, the draft versions of the directive currently under discussion before European institutions do not completely challenge the soundness of the strategy pursued by the Commission, and they simply try to further limit the scope and the impact of the proposed measures.

I argue that, considering the evolution of the academic and political debate, the expected impact of the Commission's proposal, if finally adopted, will be modest, and, probably, it will not achieve its intended shareholder empowerment goals.

 

1. The evolution of the debate on the corporate governance of financial institutions and listed com-panies after the crisis: the first reactions of the European Union.

The recent initiatives undertaken by European institutions in the domain of corporate governance have been aimed at trying to solve the problems that allegedly became evident during the financial crisis. The starting point of this evolution was the famous De Larosière Report [1], which, however, devoted only few remarks to corporate governance. The focus of the Report was on the governance of financial institutions, and two were the issues that were considered most problematic: (a) the lack of expertise of boards and senior managements in dealing with risks associated with financial products [2], and (b) the misguided remuneration and incentive schemes, which exacerbated risk-taking and short-termism [3].

To address the first set of problems, the De Larosière Report suggested some measures to improve risk management [4]. With regards to remuneration schemes, the Report recommended making sure that compensation incentives were 'better aligned with shareholder interests and long-term firm-wide profitability' of financial institutions, by ensuring that the assessment of bonuses be made in a multi-year framework and that bonuses reflect the actual performance of directors and managers [5].

A few days after the publication of the De Larosière Report, the European Commission also made available the Communication 'Driving European Recovery', in which it further explored some of the shortcomings of corporate governance that became evident during the financial crisis. In a few words, the Commission proposed to take action in the domain of directors' remuneration, not only for financial institutions, but also for listed companies [6]. Also in this case the stated goal of these measures was 'to avoid short-term excessive risk-taking' [7].

This initial reflection on the possible implications of the experience gathered during the financial crisis for corporate governance, finally resulted in the publication of two recommendations of the Commission on remuneration policies: one addressed to financial institutions [8] and one addressed to listed companies [9]. These two documents complemented two other previous recommendations on remuneration policies that had been issued, respectively, in 2004 [10] and in 2005 [11].

Even though addressed to two different types of entities, the structures of these two recommendations shared many points in common. First, both documents gave particular emphasis to the necessity of better disclosing information concerning remuneration schemes [12]. Second, both recommendations mentioned detailed rules on the structure of these schemes and - among other things - they also suggested a balancing between the variable and non-variable parts of the remuneration, as well as a deferral of the variable part [13].

Interestingly, the recommendation discussing the remuneration of directors in listed companies also mentioned some measures that were already included in the first Recommendation of 2004 [14]. More precisely, the Recommendation of 2004 invited Member States (a) to prepare a remuneration statement to be submitted to a vote in the general meeting with either a mandatory or an advisory nature [15] and (b) to require the prior approval of the annual general meeting for remuneration schemes, whether directors were 'remunerated in shares, share options or any other right to acquire shares or . . . on the basis of share price movements' [16]. In light of this framework, the Recommendation of 2009 further advised Member States to encourage shareholders and, above all, institutional shareholders, to attend general meetings and, where appropriate, to make use of their voting rights concerning directors' remuneration [17].

Even in these first actions following the financial crisis, it was evident that the measures adopted by the European Commission were distinctively aimed at two different types of entities: on the one hand, financial institutions, and, on the other hand, listed companies. Another important aspect of this early debate concerning the strategies to address the problems raised by the financial crisis, is that, even if it was clearly acknowledged that the issues raised by the governance of financial institutions had implications that were different from those of listed companies, the solutions that were considered appropriate to solve the problems existing in the former, were frequently believed to be a good source of inspiration also for improving the governance of the latter.

However, from a practical point of view, the European Commission did not consider particularly successful this first attempt of reform. In fact, European recommendations are not binding on EU Member States, and the Commission felt that the Member States put at risk the actual effectiveness of the measures suggested by not adopting them promptly and uniformly [18].

 


2. The evolution of the debate on the governance of financial institutions: the Green Paper on the Corporate governance in financial institutions.

In this scenario, the European Commission decided to further explore the possibility of improving the corporate governance of European companies by separating the discussion on the measures addressed to financial institutions from that on the initiatives addressed to listed companies, and it gave priority to the former. Therefore, in June 2010, the Commission launched a public consultation on Corporate governance in financial institutions and remuneration policies [19], a document that highlighted several problems in the governance of financial institutions [20].

The measures proposed to solve these issues were diverse and, among other things, they concerned (a) the composition and the structure of the board, (b) the potential role of shareholders and institutional investors in the governance of financial institutions, with particular attention to the strategies aimed at facilitating the identification of shareholders, (c) the enhancement of the consistency and effectiveness of EU actions on directors' remuneration [21], (d) the possibility of adopting initiatives to prevent and fight conflicts of interest in financial markets, and (e) the improvement of the effectiveness of risk management.

The reactions of the stakeholders to the Commission's envisioned actions were not particularly positive and, in some cases, even skeptical [22]. Without entering into the details of the reactions to each measure [23], it is worth noting that the initiatives concerning conflicts of interest, remuneration policies, and the potential role of shareholders were not always well received. More precisely, with regard to shareholders' engagement, the respondents to the consultation were generally in favor of a mandatory disclosure of institutional investors' voting practices. They also favored compulsory adhesion of institutional investors to national or international codes of best practices, and the creation of mechanisms to facilitate the identification of shareholders and cross-border voting. In contrast, the respondents did not support the adoption of any further action in the domain of remuneration policies, since it was believed that, in light of the existing recommendations and - at the time - the ongoing review of the Capital Requirements Directive, and also considering that the effects of the implementation of these measures were still to be carefully evaluated, no additional measures were needed. Finally, the reactions to the possibility of reinforcing the legal framework concerning the prevention of conflicts of interest were mixed. However, the prevailing opinion urged better coordination and alignment at the European level of rules dealing with this issue.

 

3. Continued: the rules on remuneration policies in the CRD III.

This long debate on the governance of European financial institutions finally had some more-tangible results with the adoption of the Capital Requirements Directive III (CRD III) in 2010 [24] and of the Capital Requirements Directive IV/Capital Requirements Regulation (CRD IV/CRR) in 2013 [25]. These pieces of legislation reshaped the existing framework provided by the first two capital requirement directives [26].

CRD III, which is addressed to credit institutions, enacted new rules on remuneration policies. These measures concerned the role and duties of remuneration committees, and the structure and disclosure of the remuneration policies of persons whose activities have a material impact on the institution's risk profile.

With particular regard to the latter set of measures, it was provided that remuneration policies had to promote 'sound and effective risk management', could not 'encourage risk-taking that exceeds the level of tolerated risk of the credit institution', and should pursue the 'long-term interests of the credit institution' [27]. The board of financial institutions was required to provide, at least on a yearly basis, a review of the general principles of the remuneration policy, and it was also made responsible for the implementation of these general principles [28]. Also, the issue of the deferral of payments and that of a balance between the variable and non-variable parts of the remuneration were finally addressed: credit institutions were required to 'set the appropriate ratios between the fixed and the variable component of the total remuneration' [29], and they were also required to pay at least 50% of the awarded bonuses with shares or other instruments subject to a retention policy [30]. In addition, the payment of 'performance-based components of remuneration [were to be] spread over a period which [had to take] account of the underlying business cycle of the credit institution and its business risks' [31]. CRD III also provided that at least 40% of the variable component of the remuneration had to be deferred over a period that ought to be not less than three to five years and had to be correctly aligned with the nature of the business, its risks, and the activities of the person in question [32]. In addition, if the variable part of the remuneration was of particularly high amount, the payment of at least 60% of that amount was to be deferred [33]. Moreover, Member States were required to enact legislation to considerably reduce the total variable remuneration in case of subdued or negative financial performance of credit institutions, 'taking into account both current remuneration and reductions in payouts of amounts previously earned, including through malus or clawback arrangements' [34].

For what concerns disclosure of remuneration policies, CRD III required Member States to ensure that credit institutions were subject to extensive reporting obligations for personnel whose activity could have an impact on their risk profile [35]. In this framework, particular emphasis was given to the disclosure of information concerning the decision-making process adopted for determining the remuneration policy, the link between pay and performance, and the structure of remuneration schemes [36].

The approach followed by the European authorities in CRD III deserves attention for several reasons: first, among the different areas of intervention that, at that time, were under discussion to improve the corporate governance of financial institutions, the greatest attention was given to remuneration policies. Second, the strategy adopted was to regulate both the substantive and disclosure aspects of remuneration policies. Third, these measures were introduced not by issuing a recommendation, but by enacting a European Directive, which is a binding legislative measure addressed to the Member States of the European Union.

Even if CRD III was an important point in the development of the regulation of the governance of European companies, this directive concerned only a limited number of - yet very important - legal entities. In addition, this legislation was principally focused on the problem of bad incentives created by imprudent remuneration policies. Moreover, some degree of flexibility was still granted to Member States in implementing this directive in their national legislation. In any case, CRD III was quickly replaced by the CRD IV/CRR framework, which, after lengthy negotiations, was finally enacted in 2013.

 

4. Continued: the measures concerning corporate governance in CRD IV/CRR.

The measures concerning corporate governance adopted by European authorities in the CRD IV/CRR framework followed in the footsteps of the legislation enacted in CRD III, even if their scope was surely broader. Certainly, also the CRD IV/CRR framework - as CRD III - did not directly affect the governance of all listed companies, but was addressed only to credit institutions and financial firms. Moreover, the provisions on remuneration policies remained a key aspect also of this legislation. Yet, the CRD IV/CRR framework also dealt with other aspects of corporate governance, like the structure of the management body, and it also enhanced the scope and nature of the disclosure obligations imposed on these financial institutions.

Starting with this last aspect of CRD IV/CRR, it is worth noting that a fundamental change concerned the nature of the provisions devoted to disclosure: while in CRD III these rules were included in an Annex to the directive, they became, and currently are, part of the CRR, which, being a regulation, has direct effect and does not need to be transposed by the Member States. The content of the information on remuneration policies to be made available by credit institutions and financial firms closely follows the approach that was adopted in CRD III, with some adjustments mainly due to the modifications to the rules on the structure of remuneration introduced by CRD IV, which will be examined here below [37]. Surely, an interesting and important innovation has been the obligation to disclose the number of individuals being remunerated more than one million Euros [38].

In addition, following solutions adopted on the structure of the board, which will be outlined here below, CRR imposed disclosure obligations with regard to (a) multiple directorships held by members of the managing body (b) recruitment policies and actual knowledge, skills, and expertise, (c) policies on diversity with regard to the selection of members of the management body, and (d) information regarding risk management and risk profile of the institution [39].

The substantive part of the corporate governance measures of CRD IV/CRR was included in Articles 88 and following of CRD IV, which define the duties of the management body [40], impose a separation of the functions of the chairman of the management body from those of the chief executive officer, and, in certain cases, require the appointment of a nomination committee [41]. These provisions also provide rules on the composition of the management body, by imposing limitations on directors' multiple mandates, and require that directors are of sufficiently good repute and meet knowledge, skills, and experience requirements [42]. Special emphasis has also been given to the fact that management bodies should promote diversity [43], with special attention to the necessity of ensuring gender diversity [44].

With regard to the provisions devoted to the substantial rules on remuneration policies, the general framework of CRD III has been largely confirmed [45]. Yet, some relevant aspects of the rules have been made stricter: for example, a cap has been introduced to the variable component of the remuneration, which is not allowed to exceed a ratio of 100% of the fixed component of the remuneration. However, if some strict conditions are satisfied and with the approval of the shareholders, Member States may allow an increase of this ratio to 200% [46]. Another important modification to the rules included in CRD III concerned the requirement of CRD IV that '[u]p to 100 % of the total variable remuneration' must be made 'subject to malus or clawback arrangements'. In addition, credit institutions and financial firms were also required to 'set specific criteria for the application of malus and clawback' with regard to situations in which the member of the staff 'participated in or was responsible for conduct which resulted in significant losses to the institution' or 'failed to meet appropriate standards of fitness and propriety' [47]. To conclude this analysis of CRD IV/CRR, it is also important to highlight that the problem of risk management was also addressed in other dimensions, different from that of the remuneration policy [48].

 

5. The evolution of the debate on the governance of listed companies: the Green paper on the EU corporate governance framework.

While the discussions on the review of the Capital Requirements Directives were still ongoing, the Commission also started exploring the possibility of reforming the governance of all listed companies, and, in April 2011, it published the consultation on the EU corporate governance framework [49]. This document was principally focused on three possible areas of intervention: (a) the structure and functioning of the board of directors; (b) the role of shareholders; and (c) the effectiveness of the 'comply or explain' principle.

With regard to the 'comply or explain' principle, the Commission asked if the 'explain' part of this principle needed to be reinforced, and if it was desirable to give monitoring authorities the power to verify if the information published is sufficiently informative and comprehensive. The proposals related to the board were more articulated, and they concerned the structure of this corporate body, like enhancement of board diversity, limitations on multiple mandates, and mandatory separation of the functions and duties of the chairperson of the board of directors from those of the chief executive officer. Other tentative proposals were related to risk management. Importantly, the problem of the remuneration was also addressed: the possibility of mandating disclosure of individual directors' remuneration and, more in general, of the remuneration policies of companies, was evaluated, and the possibility of putting these policies to a binding vote of the shareholders was also explored [50].

The proposals related to the role of shareholders were focused on the problem of short-termism, and they can be divided among (a) those directed to institutional investors, asset managers, and proxy advisors, (b) those aimed at facilitating the identification of shareholders, and (c) those concerning enhancement of the protection of minority shareholders, by allowing them to better represent their interests (eg, by appointing some members of the board of directors) or by introducing a European framework on related-party transactions [51].

The reactions of the stakeholders to the strategies proposed by the Commission were generally not positive [52]. In particular, it was felt that many of the solutions that were under discussion for dealing with the governance problems of financial institutions were simply replicated for listed companies, while the governance problems of the latter type of entity were different from those of the former [53].

With regard to the problem of remuneration policies, most of the respondents supported an enhancement of disclosure obligations [54]. The necessity of a vote of the shareholders on remuneration policies was seen less favorably and, in any case, the majority of the participants in the consultation suggested simply giving an advisory nature to this vote [55].

The respondents also supported improvement of rules on shareholders' identification and favored mutual recognition among Member States of national identification systems [56]. Also, the idea of requiring proxy advisors to be more transparent received positive reactions [57].

The part of the consultation that was not warmly received was that devoted to minority shareholders. Both the proposal on the appointment of directors representing minority shareholders and that on related-party transactions were criticized, since it was believed that the safeguards already in place were sufficient, and that any further action could result in a potential increase of a distorted and abusive use of these tools of corporate governance [58].

 

6. Continued: the Action Plan on European company law and corporate governance.

The next step in the evolution of the debate over the governance of listed companies took place in 2012 when the Commission published the new Action Plan on European company law and corporate governance, which evoked many of the corporate governance strategies that were discussed in the consultation on the EU corporate governance framework [59]. More precisely, the Action Plan envisaged the possibility of amending the shareholder rights directive [60], so as to introduce legislation aimed at (a) disclosing the voting and engagement policies and voting records of institutional investors, (b) improving the transparency on remuneration policies for directors, (c) recognizing a shareholders' right to vote on the remuneration policies, and (d) improving shareholders' control over related-party transactions [61]. In another part of the Action Plan, the Commission also mentioned that it was planning to propose an initiative to improve shareholder identification [62]. Interestingly, all measures regarding the structure of the board of directors and risk management, to which the consultation on the EU corporate governance framework gave great attention, were only mentioned with respect to the adoption of an initiative to strengthen the disclosure requirements on board diversity and risk management [63].

 

7. The proposal for a revision of the shareholder rights directive.

The efforts undertaken by the Commission to improve the governance of listed companies finally materialized in 2014, when, on April 9, only few weeks before the election of the new European Parliament and few months before the end of his mandate, Commissioner Barnier, among several initiatives in the domain of company law and corporate governance, presented a proposal for a revision of the shareholder rights directive [64]. The Commission highlighted five different issues that needed action: first, insufficient engagement of institutional investors and asset managers; second, inadequate transparency of proxy advisors; third, difficult and costly exercise of rights flowing from securities for investors; fourth, insufficient links between pay and performance of directors; and fifth, lack of shareholder oversight of related-party transactions. All of these problems were articulated in detail in the explanatory memorandum and the impact assessment accompanying the proposal to amend the shareholder rights directive [65].

The problem of insufficient engagement of institutional investors and asset managers has been addressed by requiring them to develop a policy on shareholder engagement to be disclosed to the public or, in case institutional investors and asset managers decide not to develop such a policy or to disclose it, to provide a reasoned explanation for this decision [66]. The policy should also include strategies to manage actual and potential conflicts of interest with regard to shareholder engagement [67]. More in general, it has also been proposed to strengthen the disclosure obligations imposed on both institutional investors and asset managers in view of the medium- to long-term performance of institutional investors [68].

With regard to problems related to the lack of transparency of proxy advisors, the proposal, if enacted, would require Member States to 'adopt and implement adequate measures to guarantee that their voting recommendations are accurate and reliable, based on a thorough analysis of all the information that is available to them' [69]. In addition, the Commission has also proposed imposing on proxy advisors several obligations concerning disclosure of their activities [70] and identification and disclosure of actual and potential conflicts of interest [71].

The issue of the difficulties and costs investors face when attempting to exercise the rights flowing from their securities is addressed with an elaborate set of provisions. If adopted, the proposal would grant to companies the right to have their shareholders identified, eventually also through the chain of the intermediaries, but exclusively for the purpose of facilitating the exercise of shareholder rights [72]. Intermediaries would also be required to facilitate the exercise of shareholders rights, including the right to take part and vote in the general meeting [73]. In addition, if companies decide not to directly communicate with their shareholders, and if the information is necessary to the exercise a right of the shareholder or the information is directed to all shareholders of a specific class, the information concerning the shares must be transmitted without undue delay by the intermediaries to the shareholders, eventually also through the chain of the intermediaries. Moreover, the Commission also proposes to impose on intermediaries an obligation to transmit information, received by the shareholders and addressed to companies, concerning the exercise of rights flowing from the shares [74].

The most important and debated measures proposed by the Commission in this revision of the shareholder rights directive are surely those concerning remuneration policy and related-party transactions. With regard to the first area of intervention, the proposed modifications would require Member States to obligate companies to prepare a remuneration report providing a detailed 'overview of the remuneration, including all benefits in whatever form, granted to individual directors . . . in the last financial year' [75].

Even more importantly, another provision of the draft directive would grant to shareholders the right to vote on the remuneration policy of directors [76] and on the remuneration report mentioned above [77]. More specifically, it is proposed that the remuneration policy indicate the relative proportion of the different components of the fixed and variable parts of the remuneration and provide detailed indications on the structure of the variable part of the remuneration. In addition, the remuneration policy would have to illustrate how it contributes to the long-term interest and sustainability of the company and, unless exceptional circumstances occur, also describe 'the ratio between the average remuneration of directors and the average remuneration of full time [sic] employees of the company other than directors', and explain why this ratio is considered appropriate [78].

While the shareholder vote on the remuneration report would take place every year at the annual general meeting, that on the remuneration policy would take place at least every three years. The vote on the remuneration policy would be binding and companies would be allowed to pay the remuneration to their directors only in accordance with an approved policy [79]. In contrast, the consequence of a vote against the approval of the remuneration report would simply be an obligation on the part of the company to explain in the following remuneration report whether or not that vote of the shareholders had been taken into account [80].

To conclude this analysis of the proposal for a revision of the shareholder rights directive, provisions on related-party transactions, with several exemptions and qualifications, would require companies to publicly announce transactions with related parties that, at the moment of their conclusion, represent more than 1% of the company's assets. This announcement would also be accompanied 'by a report from an independent third party assessing whether or not [the transaction] is on market terms and confirming that [it] is fair and reasonable from the perspective of the shareholders' [81]. In addition, transactions representing more than 5% of the company's assets, or which can have a significant impact on profits or on turnover, would be required to be subject to prior approval by the general meeting [82].

In addition to these measures, it is also important to highlight that the Commission has also undertaken other initiatives to address the corporate governance problems raised by the financial crisis. For example, the issues deriving from the structure of the board of directors that, as indicated in the 2012 Action Plan, were not to be discussed in the context of the revision of the shareholder rights directive, were addressed in another initiative of the Commission, focused only on the disclosure [83]. Similarly, also the review of the 'comply or explain' approach is not mentioned in the shareholder rights directive, and, as it was indicated in the 2012 Action Plan, the Commission adopted a softer approach and published only a non-binding recommendation.

 

8. The first reactions to the proposals of the Commission

The different areas of intervention addressed by the proposed revision of the shareholder rights directive have already given rise to some interesting academic reactions. Until now, the debate has been principally focused on the soundness of the strategies adopted by the Commission. In general, legal commentators showed a certain skepticism on the desirability of the measures proposed.

9. Continued: institutional investors and asset managers.

Starting with the part of the proposal concerning the engagement of institutional investors and asset managers, the idea of improving the disclosure of the policies on shareholder engagement was supported by authoritative commentators even before the presentation of the 2012 Action Plan [84]. However, after the publication of the proposed revision of the shareholder rights directive, it has been highlighted that measures similar to those recommended by the Commission already existed in the United States, and that they failed to achieve their intended goals. This suggests that it would be difficult to believe that these European initiatives could perform better than their analogous US counterparts could [85].

Other prominent scholars have criticized the content of the Commission's initiative both on its details, arguing that it would be too burdensome to impose on institutional investors and asset managers to disclose their voting policies with regard to each company in which they hold shares [86], and, in general, recommending that the part of the initiative devoted to the engagement policies should take the form of a recommendation and not of a directive [87]. Finally, other criticisms concerned (a) the failure to recognize the presence of blockholders in the governance of European companies, (b) the dubious link between an increase in activism and the improvement of corporate governance, (c) the risk of undermining the currently existing incentives to engage shareholders in activism, and (d) the difficulties of relying on a time horizon engagement criterion as an accurate proxy for good or bad corporate governance [88].

10. Continued: proxy advisors.

With regard to the measures addressed to proxy advisors, it should be noted that, in the context of the consultation on the EU corporate governance framework, it was suggested that the activities carried out by these subjects required 'coordinating efforts at the EU and national level in such areas as disclosure of conflicts of interest, information on voting policies and individual follow up in case of contested meetings' [89]. However, already few months before the publication of the 2012 Action Plan, other company law experts were more cautious with regard to the possibility of taking any action in this domain, and they recommended the Commission to avoid intervening in this field, collect more data, and wait for the outcome of the discussions concerning the self-regulation of this industry, before deciding if additional actions were really needed [90].

After the publication of the proposal for a revision of the shareholder rights directive, this more cautious approach has also been supported by the same group of experts that, in the consultation on European corporate governance framework, advocated additional efforts at the European and national level in this area. In fact, this group concludes that 'it would be preferable to further continue to address this matter in accordance merely with industry codes of conduct, as has been proposed by ESMA after extensive consultation' [91].

The concern of the lack of reliable data and information on how this industry operates in the European Union has also been voiced by other scholars [92], who emphasized that, in light of the little information available, it is difficult to conclude that proxy advisors offering voting recommendations are plagued by dangerous short-termism [93]. In this context, it is also worth noting that it has been highlighted that the alleged existence of problems deriving from the potential or actual conflict of interest of proxy advisors has found little support in the literature [94].

 

11. Continued: the identification of shareholders.

The initiatives concerning the identification of shareholders have been considered an important aspect of the strategies available to improve the governance of companies. For example, the Report of the Reflection group argued that facilitating the vote of shareholders in general meetings should be considered a priority for the advancement of European company law [95]. Also another group of company law experts, in the context of the consultation on the EU corporate governance framework, recommended to grant to shareholders the possibility 'to take part in the general meeting and cast their votes independently from any intervention of the securities depositary system' [96]. In addition, the support to the measures aimed at improving the communication between companies and shareholders was further reiterated by the members of the Reflection group at the moment of the consultation on the 2012 Action Plan [97].

Taking into account this anticipation for the possible actions in this field, one would expect that the measures presented by the Commission were to be received warmly by scholars and experts. In spite of these expectations, the first reactions have not been enthusiastic. Remarkably, an important group of scholars that previously considered important to take action in this field, now concludes that the initiatives proposed by the Commission are only a 'suboptimal mechanism to facilitate shareholder voting' [98].

The criticisms that have been moved to the draft directive are many: first, the possible advantages deriving from the facilitation of the exercise of shareholder rights must be confronted with the - likely in Europe - possibility that a company has a concentrated ownership. In these situations, it has been argued that it would be difficult to expect an improvement in the activism of small shareholders, even if the exercise of their rights was to be made easier [99].

A second important issue is that of the costs associated with shareholder identification, which could be particularly relevant, especially if compared with the - in many cases arguably limited - advantages that could derive from such identification [100]. A third problem that has been highlighted is that of the possibility that the cumbersome identification process could also not result in an actual identification of some important shareholders, who could deliberately decide to hide their identity behind legal structures or other legal arrangements [101], or who could simply be inaccurately identified by the intermediaries [102].

Finally, also the fact that 'the rights to be established under the Directive are vested in companies, not their shareholders' [103] could also result in having companies which 'use the shareholder identification information to make engagement more, not less, difficult' [104], and to limit the possibility of shareholders to have access to their rights when they would need them [105]. From this perspective, it mustalso be highlighted that the directive does not give the shareholders the ability to identify each other, which could be crucial for facilitating the formation of coalitions among shareholders [106].

 

12. Continued: the insufficient link between pay and performance of directors.

As mentioned above, since the beginning of the debate on corporate governance that followed the financial crisis, the problems raised by the insufficient link between pay and performance were at the center of the discussions, and both the CRD III and the CRD IV/CRR devoted attention to these issues. With regard to listed companies, several points were already raised at the time of the consultation on the EU corporate governance framework. More precisely, at that time it was recognized that the strengthening of the disclosure of remuneration policies could improve corporate governance in both companies with a dispersed and with a concentrated ownership [107]. Also the introduction of a remuneration report was considered a promising strategy to address these issues [108].

However, even at this early stage, several criticisms were cast about the virtues of an approval of remuneration policies and remuneration reports by general meetings [109]. Doubts on the benefits of introducing a 'say on pay' at the European level were also expressed by the members of the Reflection Group on the Future of EU Company Law in their contribution to the consultation that preceded the publication of the 2012 Action Plan. Even if the possibility of requiring a binding vote on remuneration policies by the shareholders was not completely ruled out, these experts recommended the Commission to gather additional information on this matter before taking action [110].

After the publication of the Commission's proposal, the problem of the mandatory and binding nature of the vote of the general meeting on the remuneration policy remained a sensitive issue [111]. For example, it wassaid that the Commission, in ruling out more interventionist approaches to pay, may be relying on widespread, but misguided, economic assumptions [112].

It has also been argued that the mandatory and binding 'say on pay' rules proposed by the Commission simply rely on unproven assumptions [113]. In particular, it is not sure if there is a problem with executive compensation and if this problem can be solved by granting to shareholders the right to vote on remuneration policies [114]. In addition, it has also been suggested that other aspects of remuneration policies, like the structure of the compensation, were addressed only marginally by the new draft directive, while these aspects could probably play a more important role for improving the governance of companies [115].

 

13. Continued: related-party transactions.

To conclude this review of the reactions to the revision of the shareholder rights directive, it is necessary to analyze the rules on related-party transactions. Interestingly, already in the context of the consultation on the EU corporate governance framework it was recognized that a problem existed in this area and the Commission was suggested to adopt a recommendation to deal with this issue [116].

Similarly, also the members of the Reflection group showed interest for the adoption of an initiative in this area in their contribution to the consultation on the 2012 Action Plan. More precisely, these company law experts discussed the possibility of adopting either substantive requirements or disclosure requirements with regard to related-party transactions [117]. However, they also maintained a cautious approach and suggested a careful assessment of this matter [118].

After the publication of the draft directive, Luca Enriques published an interesting analysis of the rules on related-party transactions [119];he concluded that, to ensure their effectiveness, these rules should rely on a good enforcement system [120]. From this perspective, another scholar, Therese Strand, examined the problem of the enforcement of related-party transactions in the proposal for the revision of the shareholder rights directive, and she concluded that the lack of effective rules on the enforcement should be considered an important loophole in the initiative of the Commission [121].

In his analysis, Luca Enriques also argues that the proposal of the Commission displays several problems: being under-inclusive, providing weak safeguards, and being inflexible. With regard to the first point, he argues that the adoption of thatquantitative requirement is not particularly reliable and that it could be subject to manipulation [122]. In addition, the scope of the directive seems to be limited only to transactions with related parties and not to those transactions in which related parties might have an interest [123]. Finally, it also seems that the proposed legislation would not be applicable to the transactions concluded by the subsidiaries of companies subject to the rules on related-party transactions [124].

The criticisms addressed to the safeguards used to deal with related-party transactions also concern the poorly outlined content of the fairness opinion and of the disclosure obligations imposed on companies [125]. In addition, the approval of the general meeting could only be a weak protection, as it is uncertain to what extent shareholders can be disinterested and effective in evaluating these transactions [126]. Moreover, the approval of the transactions comes at the end of a negotiation process, which Member States are free to leave to interested parties [127], and the affiliates of the related party are not expressly prevented from voting in favor of the transaction [128].

Finally, the rules proposed by the Commission are inflexible because they do not recognize the possibility of taking advantage of alternative arrangements that could exist or be used in Member States to deal with the problems raised by related-party transactions [129]. In addition, the exemption regime does not appear particularly flexible [130].

 


14. The additional limitations on the impact of the measures proposed by the Commission under dis-cussion in the legislative process: the debate at the Council.

In this context, it should be highlighted that, in the discussions that are currently taking place at the Council and at the European Parliament, the initial Commission proposal is undergoing some significant changes. For example, the text that is currently under discussion at the Council [131] would allow Member States to limit the scope of shareholder identification to only those shareholders holding more than 0.5% of shares or voting rights. In addition, the scope of the disclosure obligation imposed on proxy advisors has- somehow - been narrowed.

More importantly, with regard to remuneration policies, even if it is still said that the vote of the general meeting is binding, Member States may still give this vote an advisory nature if, in the event of a negative vote, a revised policy is submitted to a vote at the next general meeting. In addition, with reference to the advisory vote on the remuneration report, it is said that, for the companies with an average market capitalization of less than EUR 200,000,000, Member States may provide that, as an alternative to the vote, the remuneration report of the last financial year is submitted for discussion in the annual general meeting as a separate item of the agenda.

With regard to related-party transactions, the original quantitative thresholds of 1% and 5% of the assets have disappeared, and have been replaced by a materiality test, which remains quantitative in its nature, but whose precise form will be determined by each Member State. Moreover, Member States will be allowed to grant the right to approve a related-party transaction not necessarily to the general meeting, but to the administrative or supervisory body of the company. Finally, the cases of exemption have been extended and clarified.

15. Continued: the debate at the European Parliament.

The version of the directive under discussion at the European Parliament [132] at the time of this writing reconsiders some important aspects of the Commission's initial proposal [133]. With regard to the rules on related-party transactions, the Parliament's new text abandons the asset thresholds that were originally provided in the draft directive. In addition, the European Parliament's version would allow Member States to give the power to approve material transactions not only to the general meeting, but also to the administrative or supervisory body of the company.

The European Parliament has also introduced new parts into the proposal that, as of this writing, are hotly debated at the political level. Reference, here, is made to the proposed amendments to Dir 2013/34/EU and Dir 2004/109/EC, with the view of introducing a country-by-country tax reporting requirement for large undertakings and public-interest entities [134]. Even though not directly related to the revision of the shareholder rights directive, the debate on those other amendments is delaying the advancement of the proposal, which remains, at the time of this writing, subject to a trilogue negotiation among the Commission, the Council, and the European Parliament [135].

Despite the European Parliament's efforts to amend the Commission's proposal, it remains uncertain if the proposal for a revision of the shareholder rights directive will ultimately include also suchamendments. In fact, the impact assessment of the Commission's recent proposal on country-by-country reporting, published in April 2016, clearly stated that it is not the initiative on the revision of the shareholder rights directive, but rather 'specific legislation [that] is the best instrument to achieve the desired goal' [136]. Obviously, the impact assessment only reflects the position of the Commission and not that of the European Parliament. However, it seems that the debate on country-by-country reporting is taking a different path from that of the revision of the shareholder rights directive.

16. The risks of making the proposal of the Commission more directive trivial.

Examining the two preliminary documents (that is, the one discussed at the Council and the other at the European Parliament), both of which are tentative compromises subject to further discussions, it is interesting to note that many of the original solutions concerning the revision of the shareholder rights directive have been qualified, characterized, and, in many cases, diluted. The role of the Member States has been significantly enhanced while several parts of the Commission's initial proposal have either been made optional or been reformulated to accommodate the needs and specificities of each country. The approach taken by both bodies cannot be faulted for being pragmatic  of for accommodating practices that already exist in the Member States; but it will certainly not lead to a uniform, coherent and effective application of European law. More importantly, it is highly doubtful that it will enhance existing corporate governance practices.

This is not to say, obviously, that - if and to the extent - enacted, the revision of the shareholder rights directive will have no tangible effects [137]. It is just far more likely that the ultimate effects of the final version of the adopted text - and the means employed to achieve them - will no longer be consistent with the original proposal. A paradigmatic example of this likely outcome can already be found in the direction that the debate on remuneration policies took at the Council: Commissioner Barnier advocated for the introduction of a binding shareholder 'say on pay' in order to exercise proper shareholder control over managers, but the Council chose to look for a more cautious approach. Even though some have argued that the Commission's original approach was wrong or quack corporate governance and needed to be modified, it might have been better for the Council or the Parliament to simply reject the Commission's proposal in its entirety, rather than trying to make it palatable by inserting accommodating solutions that are likely to neutralize its effectiveness.

When compared to other initiatives that were proposed at the time of the consultation on the EU corporate governance framework, those other proposals, to the extent they are still under discussion, have a more limited scope and are less invasive. Som might praise that approach for being able to limit the possible negative consequences that could derive from the adoption of legislation not based on reliable empirical evidence. In the end, a somewhat similar argument was recently advanced to deal with the supposedly quack corporate governance rules concerning the structure of the board of directors of the CRD IV/CRR [138].

However, that strategy could also have implications that extend beyond the domain of corporate governance reforms and may further corroborate the broader impression that the relevance of European company law is limited. From this perspective, the likely quackish nature of some of the corporate governance strategies in the text under discussion before the Council and the European Parliament could simply result in some practical difficulties, principally deriving from the necessity of getting acquainted to the new rules, and not in an authentic improvement of the European corporate governance framework.

 

NOTE

  • 1) 'Report of the High-Level Group on Financial Supervision in the EU chaired by Jacques de Larosière' (2009) <http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf> accessed 19 August 2015 (De Larosière Report).
  • 2) De Larosière Report (n 1) 32.
  • 3) De Larosière Report (n 1) 30 ff.
  • 4) De Larosière Report (n 1) 32.
  • 5) De Larosière Report (n 1) 31.
  • 6) European Commission, COM (2009) 114 final 'Driving European Recovery', 4 March 2009, 7-8 <http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0114:FIN:EN:PDF> accessed 19 August 2015.
  • 7) COM (2009) 114 final (n 6) 17.
  • 8) Commission Recommendation 2009/384/EC of 30 April 2009 on remuneration policies in the financial services sector [2009] OJ L120/22.
  • 9) Commission Recommendation 2009/385/EC of 30 April 2009 complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies [2009] OJ L120/28.
  • 10) Commission Recommendation 2004/913/EC of 14 December 2004 fostering an appropriate regime for the remuneration of directors of listed companies [2004] OJ L385/55.
  • 11) Commission Recommendation 2005/162/EC of 15 February 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board [2005] OJ L52/51.
  • 12) Commission Recommendation 2009/384/EC (n 8) s 3; Commission Recommendation 2009/385/EC (n 9), para 5.
  • 13) Commission Recommendation 2009/384/EC (n 8) para 4; Commission Recommendation 2009/385/EC (n 9) paras 3-4.
  • 14) Commission Recommendation 2004/913/EC (n 10).
  • 15) Commission Recommendation 2004/913/EC (n 10) para 4.2. However, this recommendation also provided that a Member State could only impose a requirement to vote on the remuneration statement if shareholders representing at least 25% of the votes attending the annual meeting requested it.
  • 16)

    Commission Recommendation 2004/913/EC (n 10) para 6.1.

  • 17) Commission Recommendation 2009/385/EC (n 9) para 6.1.
  • 18)

    See European Commission, COM (2010) 285 final 'Report on the application by Member States of the EU of the Commission 2009/385/EC Recommendation complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies' (2010) <http://ec.europa.eu/internal_market/company/docs/directors-remun/com-2010-285-2_en.pdf> accessed 19 August 2015, and European Commission, COM (2010) 286 final 'Report on the application by Member States of the EU of the Commission 2009/384/EC Recommendation on remuneration policies in the financial services sector'(2010) <http://ec.europa.eu/internal_market/company/docs/directors-remun/com-2010-286-2_en.pdf> accessed 19 August 2015.

  • 19) European Commission, COM (2010) 284 final 'Green Paper - Corporate governance in financial institutions and remuneration policies' (2010) <http://ec.europa.eu/internal_market/company/docs/modern/com2010_284_en.pdf> accessed 19 August 2015, for further details on the measures proposed in this consultation, see also the Commission Staff Working Document accompanying the Green Paper, European Commission, SEC (2010) 669 'Commission Staff Working Document - Corporate Governance in Financial Institutions: Lessons to be drawn from the current financial crisis, best practices - Accompanying document to the Green Paper Corporate governance in financial institutions and remuneration policies' (2010) <http://ec.europa.eu/internal_market/company/docs/modern/sec2010_669_en.pdf> accessed 19 August 2015.
  • 20) More precisely, as indicated in COM (2010) 284 final (n 19) 5 ff, these problems were: (a) the existence of conflicts of interest; (b) the defective implementation of corporate governance principles; (c) the inability of boards to effectively supervise and to take action; (d) the inability to properly address risk management; (e) the position of shareholders who might have short-term investment horizons and few incentives to conduct an effective monitoring on the activities of managers and directors.
  • 21) Interestingly, although this consultation concerned financial institutions, it also explored the available strategies to enhance the consistency and effectiveness of European measures dealing with remuneration, not only of financial institutions, but, more broadly, of listed companies.
  • 22) European Commission, 'Feedback Statement - Summary of Responses to Commission Green Paper on Corporate Governance in Financial Institutions' (2010) <http://ec.europa.eu/internal_market/consultations/docs/2010/governance/feedback_statement_en.pdf> accessed 19 August 2015.
  • 23) For further details on these reactions, see Corrado Malberti, 'The Board of Directors After the Crisis: The Role of Risk Management in the Recent European Perspectives of Reform' in Laure Nurit-Pontier, Stéphane Rousseau eds., 'Risques, crise financière et gouvernance: perspectives transatlantiques', (Éditions Thémis, Schulthess, Anthemis, 2013) 141 ff.
  • 24) European Parliament and Council Dir 2010/76/EU of 24 November 2010 amending Dirs 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies [2010] OJ L 329/3.
  • 25) Respectively, European Parliament and Council Dir 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Dir 2002/87/EC and repealing Dirs 2006/48/EC and 2006/49/EC [2013] OJ L176/338 (Dir 2013/36/EU) and European Parliament and Council Reg (EU) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Reg (EU) No 648/2012 [2013] OJ L176/1 (Reg (EU) No 575/2013).
  • 26) More precisely, European Parliament and Council Dir 2006/48/EC of 14 June 2006, relating to the taking up and pursuit of the business of credit institutions (recast) [2006] OJ L177/1 (Dir 2006/48/EC) and European Parliament and Council Dir 2006/49/EC of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) [2006] OJ L177/201 (known as CRD I), and European Parliament and Council Dir 2009/111/EC of 16 September 2009, amending Dirs 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management [2009] OJ L302/97 (known as CRD II).
  • 27) Dir 2006/48/EC, Annex V, s 11, para 23, lett (a) and lett (b), respectively, as amended by CRD III. More broadly, on the rules on remuneration in the CRD III, see Eilís Ferran, 'New Regulation of Remuneration in the Financial Sector in the EU', 9 ECFR (2012), 1 ff, 15 ff.
  • 28)

    Dir 2006/48/EC, Annex V, s 11, para 23, lett (c) and lett (d), as amended by CRD III.

  • 29) Ibid lett (l).
  • 30) Ibid lett (o).
  • 31) Ibid lett (h).
  • 32) Ibid lett (p).
  • 33) Ibid.
  • 34) Ibid lett (q).
  • 35) Dir 2006/48/EC, Annex XII, pt 2, para 15, as amended by CRD III.
  • 36) Ibid.
  • 37) Reg (EU) No 575/2013, art 450(1).
  • 38) Ibid art 450(1)(i).
  • 39) Ibid art 435(2).
  • 40) Dir 2013/36/EU, art 88(1).
  • 41) Ibid art 88(2).
  • 42) Ibid art 91(1).
  • 43) Ibid art 91(10).
  • 44) Ibid recital (60) and art 88(2)(a).
  • 45) Cf Dir 2013/36/EU, arts 92, 94 and Dir 2006/48/EC, Annex V, s 11, para 23 as amended by CRD III.
  • 46)

    Dir 2013/36/EU, art 94(1)(g)(ii).

  • 47) Ibid art 94(1)(n).
  • 48) Ibid art 76.
  • 49) European Commission, COM (2011) 164 final 'Green Paper - The EU corporate governance framework' (2011) <http://ec.europa.eu/internal_market/company/docs/modern/com2011-164_en.pdf> accessed 19 August 2015 ('Green Paper on the EU corporate governance framework').
  • 50) 'Green Paper on the EU corporate governance framework' (n 49), 9 f.
  • 51)

    'Green Paper on the EU corporate governance framework' (n 49), 11 ff.

  • 52)

    Cf European Commission, 'Feedback Statement - Summary of Responses to the Commission Green Paper on the EU Corporate Governance Framework' (2011) <http://ec.europa.eu/internal_market/company/docs/modern/20111115-feedback-statement_en.pdf> accessed 19 August 2015 (European Commission 'Feedback Statement').

  • 53) Paul Davies and others, 'European Company Law Experts' Response to the European Commission's Green Paper 'The EU Corporate Governance Framework'' (2011) 4 <http://ssrn.com/abstract=1912548> accessed 19 August 2015.
  • 54) European Commission 'Feedback Statement' (n 52) 10.
  • 55) Ibid.
  • 56) Ibid 15.
  • 57) Ibid 14.
  • 58)

    Ibid 16 f.

  • 59) European Commission, COM (2012) 740 final 'Action Plan: European company law and corporate governance - a modern legal framework for more engaged shareholders and sustainable companies' (2012) <http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52012DC0740&from=EN> accessed 19 August 2015.
  • 60) European Parliament and Council Dir 2007/36/EC of 11 July 2007 on the exercise of certain rights of shareholders in listed companies [2007] OJ L184/17.
  • 61) COM (2012) 740 final (n 59) 8 ff.
  • 62)

    Ibid 7.

  • 63) Ibid 6 ff.
  • 64) European Commission, COM (2014) 213 final 'Proposal for a directive of the European Parliament and of the Council amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EU as regards certain elements of the corporate governance statement' (2014).
  • 65) For the explanatory memorandum, see COM (2014) 213 final (n 65), 2 ff; for the impact assessment, see European Commission, SWD (2014) 127 final 'Commission Staff Working Document Impact Assessment Accompanying the document Proposal for a Directive of the European Parliament and of the Council on amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EU as regards certain elements of the corporate governance statement and Commission Recommendation on the quality of corporate governance reporting ("comply or explain")' (2014).
  • 66) COM (2014) 213 final (n 64) art 1, amending Directive 2007/36/EC by inserting art 3f(3) and (4).
  • 67) Ibid, amending Directive 2007/36/EC by inserting art 3f(2).
  • 68) Ibid, amending Directive 2007/36/EC by inserting art 3g.
  • 69) Ibid, amending Directive 2007/36/EC by inserting art 3i(1).
  • 70)

    Ibid, amending Directive 2007/36/EC by inserting art 3i(2).

  • 71) Ibid, amending Directive 2007/36/EC by inserting art 3i(3).
  • 72) Ibid, amending Directive 2007/36/EC by inserting art 3a.
  • 73) Ibid, amending Directive 2007/36/EC by inserting art 3c.
  • 74) Ibid, amending Directive 2007/36/EC by inserting art 3b.
  • 75) Ibid, amending Directive 2007/36/EC by inserting art 9b(1).
  • 76) Ibid, amending Directive 2007/36/EC by inserting art 9a(1).
  • 77) Ibid, amending Directive 2007/36/EC by inserting art 9b(3).
  • 78) Ibid, amending Directive 2007/36/EC by inserting art 9a(3).
  • 79) Ibid, amending Directive 2007/36/EC by inserting art 9a(1).
  • 80) Ibid, amending Directive 2007/36/EC by inserting art 9b(3).
  • 81) Ibid, amending Directive 2007/36/EC by inserting art 9c(1).
  • 82) Ibid, amending Directive 2007/36/EC by inserting art 9c(2).
  • 83) European Commission, COM (2013) 207 final 'Proposal for a Directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC as regards disclosure of non-financial and diversity information by certain large companies and groups' (2013), which finally became European Parliament and Council Dir 2014/95/EU of 22 October 2014 amending Dir 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups [2014] OJ L330/1.
  • 84) José Antunes and others, 'Response to the European Commission's Action Plan on Company Law and Corporate Governance', 10 ECFR (2013), 304 ff, 311.
  • 85) Edward Rock, 'Oxford Handbook: Institutional Investors in Corporate Governance' (2015) Oxford Legal Studies Research Paper No 14-37, 12 ff <http://ssrn.com/abstract=2512303> accessed 19 August 2015.
  • 86) Peter Böckli and others, 'Shareholder Engagement and Identification' (2015) 3 <http://ssrn.com/abstract=2568741> accessed 19 August 2015.
  • 87) Böckli and others (n 86) 4.
  • 88)

    Therese Strand, 'Re-Thinking Short-Termism and the Role of Patient Capital in Europe: Perspectives on the New Shareholder Rights Directive' (2015) 21 ff <http://ssrn.com/abstract=2516844> accessed 19 August 2015.

  • 89) Davies and others (n 53) 18.
  • 90) Antunes and others (n 84) 314.
  • 91) Böckli and others (n 86) 5 ff.
  • 92) Strand (n 88) 35 ff.
  • 93) Ibid 36.
  • 94)

    Ibid 36 ff.

  • 95) José Antunes and others, 'Report of the Reflection Group on the Future of EU Company Law' (2011) 50 <http://ssrn.com/abstract=1851654> accessed 19 August 2015.
  • 96)

    Davies and others (n 53) 19 ff.

  • 97) Antunes and others (n 84) 310 ff, concluding that '[a]lthough the nature of the initiative is yet unknown, we strongly support the principle that a company should be able to identify its shareholders'.
  • 98) Böckli and others (n 86) 6.
  • 99) Strand (n 88) 41, Böckli and others (n 86) 7.
  • 100) Böckli and others (n 86) 7, arguing that '[a] full identification of all shareholders as is proposed would result in considerable costs'; cf Strand (n 88) 41 ff.
  • 101)

    Böckli and others (n 86) 8.

  • 102) Strand (n 88) 42.
  • 103) Böckli and others (n 86) 6.
  • 104) Ibid (n 86) 6 ff.
  • 105)

    Ibid (n 86) 7.

  • 106) Strand (n 88) 43.
  • 107) Davies and others (n 53) 10.
  • 108) Ibid (n 53) 11.
  • 109) Ibid (n 53) 12.
  • 110) Antunes and others (n 84) 312.
  • 111)

    In addition, the part relating to  disclosure in the remuneration report received some criticism, see Andrew Johnston, Paige Morrow, 'Commentary on the Shareholder Rights Directive' (2014) U of Oslo Faculty of Law Legal Studies Research Paper Series No 2014-41, 8 <http://ssrn.com/abstract=2535274> accessed 19 August 2015.

  • 112) Ibid 9.
  • 113) Strand (n 88) 26 ff.
  • 114) See ibid 26 ff, for further details on the literature supporting these claims.
  • 115) Ibid 30.
  • 116) Davies and others (n 53) 21.
  • 117)

    Antunes and others (n 84) 312 ff.

  • 118)

    Ibid 313.

  • 119) Luca Enriques, 'Related Party Transactions: Policy Options and Real-World Challenges (with a Critique of the European Commission Proposal)', 16 EBOR (2015), 1 ff.
  • 120)

    Ibid 32 ff.

  • 121) Strand (n 88) 34.
  • 122) Enriques (n 119) 27 f, a concern also shared by Strand (n 88) 32.
  • 123)

    Enriques (n 119) 28.

  • 124) Ibid.
  • 125)

    Ibid 29.

  • 126) Ibid 30, cf Strand (n 88) 34.
  • 127) Enriques (n 119) 30.
  • 128)

    Ibid.

  • 129) Ibid 30.
  • 130) Ibid 30 f, see also Strand (n 88) 33, who argues that the exemption regime is too narrow.
  • 131) Council of the European Union, 'ST 7315 2015 INIT' (2015) <http://data.consilium.europa.eu/doc/document/ST-7315-2015-INIT/en/pdf> accessed 19 August 2015.
  • 132) As of this writing the European Parliament had not yet taken a final decision on the Commission's Proposal. Several amendments have already been agreed to at a plenary session held in July 2015. For more details on the debate at the European Parliament see Council of the European Union, 'ST 10626 2015 INIT' (2015) <http://data.consilium.europa.eu/doc/document/ST-10626-2015-INIT/en/pdf> accessed 19 August 2015.
  • 133) A useful Council document (Council of the European Union, 'ST 11243 2015 INIT' (2015) <http://data.consilium.europa.eu/doc/document/ST-11243-2015-INIT/en/pdf> accessed 19 March 2016) provides a comparison of the original version of the Commission's proposed directive  and the versions under discussion at the Council and at the European Parliament.
  • 134) See Council of the European Union, 'ST 10626 2015 INIT' (n 132), 70 ff. Interestingly, some other unforeseen additions to the Commission's initial proposal have also been discussed by the JURI Committee. More precisely, reference is made to the Committee's proposed introduction of mechanisms to support long-term shareholding, like (a) additional voting rights, (b) tax incentives, (c) loyalty dividends, and (d) loyalty shares, and to enhance disclosure on tax payments see European Parliament, 'Report on the proposal for a directive of the European Parliament and of the Council amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EU as regards certain elements of the corporate governance statement (A8-0158/2015)' (2015) <http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&reference=A8-2015-0158&language=EN> accessed 19 August 2015, 33, 53 ff. It is unlikely, however, that these additions will find their way into the final text, because these amendments were not among those adopted by the plenary session of the European Parliament in July 2015.
  • 135) The state of affairs (as of 25, January 2016) was described in a 'Reply to a question for written answer' (2016) <http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2015-013384&language=EN> accessed 10 March 2015, that was presented by a Member of the European Parliament, according to which 'the Parliament's proposed amendments with regard to public country-by-country reporting (CBCR) by economic operators were not part of the Commission's proposal and are also outside the scope of [the shareholder rights directive] proposal. Thus, they are not covered by the Commission's impact assessment. The Commission is therefore aiming to present an impact assessment on CBCR in the first quarter of 2016. At the first trilogue, held on 27 October in Strasbourg, the parties agreed to wait for the results of the Commission's impact assessment on country-by-country disclosure before starting negotiations on this question, while pursuing negotiations on all other parts of the proposal with a view to achieving a positive result as soon as possible'.
  • 136) See European Commission, SWD (2016) 117 final 'Commission Staff Working Document Impact Assessment assessing the potential for further transparency on income tax information Accompanying the document Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches' (2016), 53, n 135.
  • 137) Cf eg Luca Enriques, 'EC Company Law Directives and Regulations: How Trivial Are They', 27 U. Pa. J. Int'l Econ. L. (2006), 1 ff., 44 ff.
  • 138)

    Luca Enriques, Dirk Zetzsche, 'Quack Corporate Governance, Round III? Bank Board Regulation Under the New European Capital Requirement Directive', 16 Theoretical Inquiries in Law (2015), 211, specifically 240 ff.