On 20 May 2017, the revised Shareholders' Rights Directive was published in the official journal of the European Union. The purpose of the directive is to further promote active and transparent shareholder engagement in EU listed companies. The Netherlands, like other EU member states, has two years within which to implement the provisions of the new directive in national law. Some of the rules are new to the country; others already apply under Dutch law, although these are generally the ones that have attracted the most media attention. For example, listed companies throughout the EU will have the right to identify their shareholders; in the Netherlands this is possible under the Securities Book-Entry Transfers Act (Wet giraal effectenverkeer). Similarly, the "new" right for shareholders to vote on the remuneration policy is already laid down in Section 2:135(1) of the Dutch Civil Code. Below we will discuss the provisions in the directive that will result in changes to Dutch law.
New rights for shareholders of listed companies
- Shareholders will be entitled to vote on the remuneration policy every four years. Under the current Dutch rules, the remuneration policy, once adopted, need not be re-submitted to the general meeting except in the event of changes thereto.
- Each year shareholders will be entitled to hold an advisory vote on the remuneration report. The company must then explain in the subsequent report how the outcome of that vote has been taken into account. In the case of small and medium-sized companies, EU member states may instead require that the remuneration report be submitted for discussion in the annual general meeting as a separate agenda item.
- Material transactions with "related parties", as defined in International Accounting Standard 24, will require the approval of either the shareholders or the administrative or supervisory body, as determined by the relevant member state. Where a member state chooses to vest this power in the administrative or supervisory body, it may in addition give shareholders the right to vote on material related-party transactions following approval. The term "material transaction" will be defined at member state level.
- Shareholders who vote electronically during a general meeting will be entitled to subsequently obtain confirmation that their vote has been validly recorded and counted by the company, unless this information is already available to them. Member states may set a deadline of no longer than three months for the submission of requests for such confirmation.
Increased transparency for institutional investors, asset managers and proxy advisors
- Institutional investors and asset managers will be required to develop and publicly disclose a policy on shareholder engagement or explain why they have chosen not to do so. They must also provide insight into their investment strategy, for example how it contributes to the medium to long-term performance of their assets (in the case of an institutional investor) or the assets of the institutional investor or of the fund (in the case of an asset manager). This is also a 'comply or explain' principle.
- Each year proxy advisors will have to publicly disclose whether and, if so, to what extent they comply with a code of conduct. Here too, a comply or explain rule applies. In addition they will have to publicly disclose, also on an annual basis, certain information relating to the preparation of their research, advice and voting recommendations. Actual or potential conflicts of interest or business relationships that may influence the preparation of their voting recommendations will have to be disclosed without delay to the clients involved. Proxy advisors whose registered office and head office are outside the EU will be subject to these obligations if they carry out their activities through an establishment located in the EU.
Obligations for listed companies
Although the obligations noted below will require changes to Dutch legislation, many of these obligations are imposed, at least to some extent, in the Dutch Corporate Governance Code and are therefore already applied by most listed companies in practice.
- The directive requires listed companies to establish a remuneration policy and draw up a remuneration report that is clear and understandable. The entire report must be publicly available on the company's website for a period of 10 years. Member states may allow companies to temporarily derogate from the remuneration policy in exceptional circumstances (i.e. where derogation is necessary to serve the long-term interests and sustainability of the company as a whole or to assure its viability) and under certain conditions. A remuneration policy and remuneration report are already required in the Netherlands, but some of the requirements imposed by the directive with regard to their content and publication are of a more far-reaching nature than those under the Corporate Governance Code.
- Listed companies will be required to publicly announce material related-party transactions by no later than at the time they are concluded. If, however, such transactions are entered into in the ordinary course of business and concluded on normal market terms, the point of departure is that they do not have to be publicly announced and are not subject to the approval requirement described earlier. Member states can choose to nevertheless impose the public announcement requirement and/or approval requirement in respect of such transactions. The Dutch Civil Code already requires that material related-party transactions not concluded on normal market terms be publicly announced, but this applies at a later time: such transactions must be set out in the explanatory notes to the annual accounts. In addition, the Corporate Governance Code requires the publication (in the management report) of material related-party transactions.
The deadline for EU member states to implement the directive in national law is 10 June 2019. As shown above, they have a degree of freedom of choice with respect to some of the rules. We will therefore be closely monitoring the process of the directive's implementation in the Netherlands and will of course keep you updated.