In July the European Parliament (EP) adopted certain corporate governance related amendments to the European Commission proposal for a Directive concerning the encouragement of long-term shareholder engagement and certain elements of the corporate governance statement.

The proposed Directive amends (a) Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies (Shareholder Rights Directive) and (b) Directive 2013/34/EC on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings.

The amendments were as follows:

New country-by-country tax reporting requirement:

The EP inserted a requirement for large undertakings to publish information country by country, on profits or losses before tax, taxes on profits or losses and public subsidies received. The EP also indicated that public interest entities, including listed companies and insurance firms, as well as companies designated by Member States as public-interest entities because of their significant public relevance, should also be required to publish this information.

Shareholder say on director’s pay: 

The EP also included an amendment to enable shareholders to vote at least every three years on a listed company’s remuneration policy for directors. Member States will be permitted to decide whether the vote on remuneration policy by the general meeting of shareholders is binding or advisory.

The EP indicated that the company's policy on directors' pay should explain how it contributes to the long-term interest of the company and set clear criteria for awarding fixed and variable remuneration, including all bonuses and benefits. The value of shares should not play a dominant role in the financial performance criteria and the share-based remuneration should not represent the most significant part of directors’ variable remuneration.

Next steps:

The EP and the European Council must adopt the same final text. To this end, the EP, the Council and Commission are expected to try to informally reach an agreement on the text of the proposal, paving the way for the amended Shareholder Rights Directive to be formally adopted at first reading by the EP and Council.