On October 11, 2018, the Federal Ministry of Justice and Consumer Protection published the draft bill of a law transposing the second Shareholder Rights Directive. This relates to the transposition of Directive (EU) 2017/828 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement, which needs to be transposed into German law by June 10, 2019.
The four new subject areas of the Shareholder Rights Directive are:
- identification of shareholders
- transparency as regards institutional investors, asset managers, and proxy advisors
- votes on remuneration policy and remuneration report
- related party transactions
The Directive aims at (further) improving shareholder participation in listed companies and at facilitating cross-border information and the exercising of shareholder rights. To this end, it contains a number of provisions on shareholders’ say-on-pay rights with respect to the remuneration of supervisory and management bodies and related party transactions, on better identification and information of shareholders (“know your shareholders”), and on greater transparency relating to institutional investors, asset managers, and proxy advisors.
To improve communication options with shareholders, on the one hand, the Directive provides for new rules on the rights of listed companies to identify their shareholders to intermediaries. On the other hand, intermediaries holding shares in the company should be required to communicate relevant information between the company and its shareholders. Transparency obligations for institutional investors, asset managers, and proxy advisors will be stipulated in the Stock Corporation Act, providing for the disclosure of information relating to the participation, investment strategies, and business models of institutional investors, asset managers, and proxy advisors.
With respect to the remuneration of management board members, the second Shareholder Rights Directive provides for a vote at the general meeting on the remuneration policy designed as a framework for future remuneration, as well as a remuneration report in which past payments are to be disclosed. According to the draft bill, these provisions are to be carefully transposed into the German dualistic system by using the options granted. In particular, it is provided for the general meeting vote on the management board’s remuneration policy, which is now compulsory on a regular basis, to be of a purely advisory nature, so that the authority to define and develop an appropriate policy will continue to remain with the supervisory board. The supervisory board’s composition in accordance with co-determination provisions ensures in particular the influence of employee representatives on management board remuneration.
As regards transactions with related parties, the transposition of the Directive’s requirements provides for such transactions to be approved once a certain threshold value has been reached. In principle, the supervisory board is responsible for granting approval, with additional requirements stipulated for the approval procedure. In addition, these transactions are to be publicly announced no later than at the time of the conclusion of the transaction.
(Link to the full text of the draft bill (in German): https://www.bmjv.de/SharedDocs/Gesetzgebungsverfahren/Dokumente/RefE_Aktionaersrechterichtlinie_II.pdf?__blob=publicationFile&v=1)