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Latest in EU Corporate Law:

European Commission adopts proposal to strengthen shareholder engagement for Europe’s largest companies

In April 2014 the European Commission adopted proposal on measures to improve the corporate governance of approximately 10.000 companies listed on Europe’s stock exchange. The proposal would enhance the long-term sustainability of these 10.000 companies. In addition, it would provide hand-reach solutions for Single Member Companies (SME’s) in order to operate cross-border more effectively.

Revision of the Shareholder Rights Directive

The proposal of the European Commission entails a revision of the current Shareholder Rights Directive (Directive 2007/36/EC) and aims to make it easier for shareholders to use their existing rights over companies’ decisions. Shareholders will be able to get more engaged towards the company by forcing the board to draw a long-term perspective. These measures are proven to be necessary as the European Commission has concluded that in history shareholders too often support manager’s short-term risk taking.

The key elements of the revision entail: (i) stronger transparency requirements, (ii) engagement policies regarding investments and (iii) a framework for identifying shareholders so they can easily exercise (for example) voting rights. The framework for identifying the shareholders is necessary particularly in cross-border situations where 44% of shareholders are from a foreign country.

As a part of transparency the “say on pay” concept would be introduced. The companies in question need to disclose clear information on their remuneration policies. Each company has to put its remuneration policy into a binding shareholder vote. Also the disclosed information also needs to clarify how the pay and employment conditions of the employees are taken into account when setting the remuneration-employee-ratio.

European Commission on the “Comply or complain” principle

Corporate governance is mostly regulated by soft law. That is why the “comply or explain” principle should work well. In case the company chooses not to comply with the corporate governance rules, it should at least explain why it took that decision. This will make it easier for investors to take informed investment decisions, which will improve the overall quality of the company.

Single-Member Companies Directive

As to companies with only single shareholder (SME’s), the European Commission concluded that due to high costs and other difficulties only a small number of these companies are able to invest and establish abroad. However, the European Commission proposed some changes within the draft of the SME directive, such as removing the burdensome process of registering subsidiaries by allowing online registrations and minimum capital requirements of 1 Euro. Moreover, the SMEs would have a common label across the EU under the name of Societas Unius Personae (SUP).

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