Corporate in brief highlights recent developments in Dutch and European corporate regulation.
European Commission to strengthen shareholder engagement and introduce a “say on pay”
The European Commission has published a proposal to amend the Shareholder Rights Directive (2007/36/EC) and the Accounting Directive (2013/34/EU) with the aim of promoting long-term shareholder engagement and greater transparency at listed companies. The proposal is one of the initiatives announced in the Commission’s 2012 action plan for more engaged shareholders and sustainable companies.
The proposed amendments include:
- Shareholders of listed companies will get annual voting rights on remuneration policy and the remuneration report.
- Transactions with related parties representing more than 5% of the company’s assets or transactions which can have a significant impact on profits or turnover will have to be submitted for approval to the shareholders. Smaller transactions with related parties representing more than 1% of the assets will have to be made public at the time that they are entered into. The public announcement must include a report by an independent third party confirming that the transaction is proceeding in accordance with market practice and is fair and reasonable from a shareholders’ perspective. Frequently recurring transactions may also be made subject to shareholder approval.
- More transparency is introduced with regard to proxy advisors: they will have to make certain essential information public about the preparation of their voting recommendations and inform their clients and the company about any actual or potential conflicts of interest or business relationships that may influence those recommendations.
- Listed companies will be able to establish the identity of their shareholders by making an identification request to intermediaries.
- To increase their transparency, institutional investors and asset managers will have a duty to develop a policy concerning shareholder engagement and to make this policy public and explain their investment strategy.
Dutch company law already contains some of these new provisions, e.g., the right of shareholders to vote on the executive remuneration policy. But shareholder rights would be extended by the proposed vote on the remuneration report. The proposed identification of shareholders in listed companies has also been part of Dutch law since July 2013.
The government is currently holding a public consultation about the Commission’s proposal. The consultation will end on 18 May 2014.
European Commission publishes recommendation to improve quality of corporate governance reporting by listed companies
The specific focus of the recommendation is the quality of the explanation provided by listed companies for departing from the relevant corporate governance code. It has emerged that there are shortcomings in how this ‘comply or explain’ principle is applied. The Commission wants to address these shortcomings by providing the guidance contained in the recommendation. For example, companies must avoid the use of standard language and state how the specific context of the company explains deviation from the corporate governance code.
Member states are requested to bring the recommendation to the attention of monitoring committees, listed companies and other relevant parties. The member states should inform the Commission by 13 April 2015 of measures taken in response to the recommendation.
Directive proposed on single-member companies
The European Commission has put forward a proposal for a directive on single-member private limited liability companies to facilitate the setting up and running of businesses across borders.
The Commission drew up a similar proposal in 2008: the Statute for a European private company (SPE). But the Commission had to withdraw that proposal due to a lack of consensus.
In the new proposal, member states are asked to allow companies with only one shareholder to be governed by harmonised rules. This will ensure that the same registration and incorporation procedures apply to these companies in each member state, resulting in lower start-up and running costs. The proposal, for example, facilitates online registration, using a uniform template of articles of association, and requires only a small minimum capital.
The Dutch government has launched a public consultation to help formulate its position on the proposal, and market parties can submit feedback until 18 May 2014.
In their response to the proposal, the Dutch professional organisation of civil law notaries and the Notaries of Europe have argued that the proposal should be radically revised. Under the current proposal, a single-member company can be incorporated and registered without any involvement of notaries. The proposal is incompatible with European and international efforts to counter money laundering as it lacks adequate identity checks.
European Council gives green light to audit market reform
Under the reform measures, audit firms’ tenure at public interest entities (PIEs) is generally limited to ten years. This mandatory rotation may be postponed under certain circumstances. Dutch legislation is currently based on a shorter mandatory rotation period of eight years. Another important element of the European reform is the separation between audit services and advisory services. We explained how the European reform measures impact the Dutch situation in our In context of March 2014.
Both the directive and the regulation will take effect 20 days after publication in the Official Journal. This publication has not yet taken place. The directive must be implemented in national laws within two years after this date. The regulation has immediate effect but as many of its provisions refer to the directive, the regulation will not be applied for another two years.
The Federation of European Accountants (FEE) has prepared FAQ explaining various elements of the new rules and providing information on effective dates.
European Parliament adopts directive on non-financial and diversity reporting
The directive adopted by the European Parliament requires public interest entities employing more than 500 people to include information in their annual report about environmental matters, employee-related aspects, respect for human rights, anti-corruption, and diversity. The requirement applies to listed companies and certain non-listed undertakings such as financial institutions and insurance companies. The directive will come into force once it has been adopted by the European Council and published in the Official Journal.