European Commission proposes changes to the corporate governance rules

On 9 April 2014, the European Commission presented its proposal for amendments to the existing Shareholder Rights Directive (Directive 2007/36/EC). The aim of the new rules is to improve corporate governance of the listed companies, inter alia, by strengthening shareholder engagement as well as by enhancing transparency between companies and investors. On 12 June 2014, the Government of Finland approved a U communication (U 26/2014) regarding the proposed changes to be submitted to the Parliament of Finland.

The proposed amendments aim at creating more transparency on the remuneration awarded to directors. The remuneration policy of a listed company should be approved by the shareholders at least every three years. The policy should be made public after the approval of the shareholders. Shareholders would also be granted the right to vote on the company’s remuneration report regarding the remuneration of directors in the last financial year. The remuneration report should become part of the corporate governance statement of a listed company.

The proposal also includes stronger transparency requirements for institutional investors, asset managers and proxy advisors. Institutional investors and asset managers should develop a policy on shareholder engagement. The engagement policy, how it has been implemented and the results thereof should be publicly disclosed on an annual basis. Institutional investors should also disclose their investment strategy as well as information on the arrangements with asset managers. Proxy advisors should publicly disclose certain key information in relation to the preparation of their voting recommendations. They should also disclose any actual or potential conflict of interest or business relationships that may influence the preparation of the voting recommendations.

Transactions with related parties representing more than 5% of the companies’ assets or transactions which can have a significant impact on profits or turnover should be approved by the shareholders in a general meeting. Where the related party transaction involves a shareholder, this shareholder would not be entitled to vote on the matter. Transactions with related parties representing more than 1% of the assets should be publicly announced at the time the transaction is concluded. Such announcement should be accompanied by a ‘fairness opinion’ by an independent third-party and it should provide certain information on the transaction.

Intermediaries, who maintain securities accounts for clients, would be obliged to offer companies the possibility to have their shareholders identified. The proposal also includes requirements for intermediaries to transmit information to shareholders as well as to facilitate the exercise of the shareholder rights.

The amendments should enter into force, if approved by the European Parliament and Council, in summer 2015 at the earliest. Due to the national implementation, the new requirements would probably become applicable in 2017 or later.