Enclosed please find the SCGOP reaction on the second consultation document Fostering an appropiate regime for shareholders rights.

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1 DG Internal Market and Services Heerlen, Unit F2 July 12, 2005 European Commission B 1049 Bruxelles / Brussel Subject: SCGOP reaction on 2nd consultation Shareholder s rights Our Reference: Dear Sir, Madam, Enclosed please find the SCGOP reaction on the second consultation document Fostering an appropiate regime for shareholders rights. Kind regards, Ir. Jos. T. van Niekerk

2 A REACTION OF SCGOP ON FOSTERING AN APPROPRIATE REGIME FOR SHAREHOLDERS RIGHTS Second consultation by the Services of the Internal Market Directorate General -2/13-

3 FOSTERING AN APPROPRIATE REGIME FOR SHAREHOLDERS RIGHTS -3/13-

4 1. SCOPE When it comes to non-listed companies, we agree that rules on cross-border voting should not unconditionally be made obligatory. There may be companies for which the costs of such an operation will simply not outweigh the benefits, e.g. because it concerns a joint venture with only two shareholders. However, there are also companies who have an open structure with relatively dispersed ownership across EU-countries, despite the fact the shares of these companies are not listed. In these structures there is no reason why the facilities of crossborder voting should not apply. We therefore suggest to include non-listed companies but add the rule that the general meeting of shareholders can decide (unanimously) not to apply the facilities. What UCITS-companies are concerned, we believe these are not to be exempted from rules of shareholder protection and accommodation. It may be that these are essentially financial products as the consultation document states. In our view this does not justify a lower level of such shareholder protection and accommodation. On the contrary, in the context of the dominance of shareholder interests a UCITS-company should pre-eminently facilitate shareholder democracy in our view, inasfar similar protections are not already covered in other regulations. 2. THE ULTIMATE INVESTOR OR ULTIMATE ACCOUNTHOLDER -4/13-

5 We have strongly supported the earlier aim of the EU to strengthen checks and balances of companies by inducing shareholders to become more involved. In this respect these shareholders - and institutional investors in particular - are encouraged to use their voting rights. Inevitably this means that all impediments to such use should be lifted. As institutional investors we see two main impediments: 1) the practice of shareblocking, and 2) the inconsistency, intransparency and ineffectiveness of the various cross-border proxy voting facilities across the EU. We believe the goal of strengthening checks and balances cannot be achieved if these two problems are not at least solved in a practical manner. Such a solution is in our view a prerequisite for a stronger corporate governance in Europe. Due to the practice of shareblocking investors may lose valuable returns if they vote all their shares. This problem is not to be underestimated. As long as shares are blocked, they can not be traded nor can they be lent to other market participants. The returns lost can go up to several basis points. Some investors try to work out some form of solution in order to maximize the number of shares voted with a minimum of costs. This can lead to approximately 50% of the shares voted in the relevant markets and the other 50% unvoted. Many investors however simply await better regulation and will not or only in exceptional cases - vote their shares in blocking markets. The lack of a clear and transparent cross-border voting system leads to often hopeless bureaucracy and substantial additional costs. These costs stem from the extra manpower and other resources required to get a vote through. Even for large institutional investors which are very dedicated to their governance responsibilities it is difficult to justify these costs. It also places a burden on the effectiveness of their staff in other areas of governance: their time is disproportionately taken by the burdensome handling of cross-border proxy voting procedures. It is hard to pinpoint the exact costs involved, but it is illustrative that for most smaller investors the expected benefits simply do not outweigh the costs. In our view the best way to address this problem of intransparancy and ineffectiveness on cross-border voting, is to introduce a practicable Ultimate Investor concept. One can say it is the building block for further modernisation and improvement of company law and corporate governance in the EU. In the present-day structure of financial markets it is no longer realistic to keep holding on to the classical concept of shareholder as it is laid down in the various national systems of company law. The person which is identified as the shareholder in that sense is currently only rarely the same person holding the economic interest. At the same time we realise the potential impact of replacing the shareholder-concept by an ultimate investor concept. We feel however that the one does not necessarily exclude the other. We deem it possible that a statutory proxy is attributed to whomever is identified as the ultimate investor, thereby circumventing the opaque chain of intermediaries between a company and such ultimate investor. The UNIDROIT-definition may be a workable starting point, although we feel it will need some further clarification. In any case it needs to be clear that institutional investors such as pension funds and mutual funds are deemed to hold a security account for their own account in the sense of this definition. These entities will therefore vote as part of their fiduciary duty on behalf of their beneficiaries. -5/13-

6 3. STOCK LENDING AND DEPOSITARY RECEIPTS Stock lending enhances the stability of financial markets. It provides liquidity to the market. It results in market participants being able to meet their obligations on the basis of reasonable prices. But as noted under Paragraph 2 above, the lending of shares creates a dilemma for institutional investors. They cannot lend shares and vote them at the same time. It is hard for them to justify to their own beneficiaries why they leave returns/money on the table by not lending and voting in stead (apart from clear cut cases where the benefit of voting is self explanatory). Whereas the general meeting of shareholders is usually a date for much lending activity, it would lead to a substantial increase of voting (up to 50%) if a record date system would be used with a date sufficiently ahead of the meeting (e.g. 30 days). The institutional investors can then vote the shares at the meeting which they at that time still own in an economic sense, but which they for the time being do not own legally. A record date would also help in suppressing the practice of lending shares in order to influence the outcome of voting at AGM s. Currently it is impossible for institutional investors to track the motives of the ultimate user of a stock lending facility. A record date allows investors to review large stock lending demands just before that date with suspicion, or even to develop a policy not to a adhere to any such demand in that period. We agree with this standard, but we feel that it should be dealt with in the wider context of the ultimate investor concept. See our remarks on that in Paragraph 2 hereabove. 4. PRE GENERAL MEETING COMMUNICATIONS -6/13-

7 In the timing of the convening of general meetings, two aspects are particularly important from an institutional investor perspective. First, for fulfilling its fiduciary duties to cast a well-considered vote, an investor will require sufficient time between the moment the relevant meeting-materials are available and the date that the vote needs to be cast. Given the fact that institutional investors usually have holdings in hundreds, if not thousands of companies and their meetings are concentrated in a relatively short period of time, we feel this time should be at least three calendar weeks (15 business days). Secondly, shareholders should have a realistic opportunity to add items to the agenda. In our view these two aspects should be leading in the timing of convening general meetings. If safeguards are developed to ensure that these requirements are met, we have no objection to the proposed standards, albeit that a 10 business days notice for an extraordinary meeting may in that respect be to short a period. We strongly feel that companies should be obligated to reserve a separate page on their website for all relevant information and documentation regarding a general meeting of shareholders, preferably even following an EU-standard format. Modern means of communication should be used to facilitate a proxy voting process for investors that is as easy and accessible as possible. We could even imagine that hard copy texts only have to be made available at the explicit request of an investor. This will drastically diminish the costs for both companies and institutional investors of the whole process. In the rapid developments of modern techniques, any other approach would probably be antiquated very soon. -7/13-

8 In out view the standard should be 15 days and 10 days before the date that votes have to be cast in absentia. For non-listed companies with only domestic shareholders this would obviously be an improper burden. Any listed company however should in the current globalised financial markets facilitate a proper understanding of its business and governance to all non-domestic investors. With ownership dispersing further and funds of institutional investors increasing, also smaller listed companies are increasingly likely to have a substantial basis of such foreign investors. We strongly feel that companies should be obligated to reserve a separate page on their website for all relevant information and documentation regarding a general meeting of shareholders, preferably even following an EU-standard format. In addition to the items suggested in the question, such documentation should also include the articles of association and other information which the company is required to publish or deposit pursuant to the provisions of company law and securities law applicable to it. -8/13-

9 5. ADMISSION TO THE GENERAL MEETING -SHARE BLOCKING See our remarks in Paragraph 2 and 3 above. We do not agree in respect of what you stated in particularly Paragraph 3, that a record date needs to be close to the General Meeting as laid out in the consultation document. With the average turnover rate of sharecapital it is in our view an illusion to think that the composition of a general meeting 7 days before the date thereof is any likely to reflect the actual shareholder base any better than a meeting on that date itself, than the composition of 30 days before that date. The difference is arbitrary. Besides, the institutional shareholders especially come and go and come again, and generally share the similar views on items on the agenda. There is sort of a continuum of shareholder interest which is not affected by the high turnover rate of sharecapital as such. It is much more important to find adequate solutions to the problem we outlined in Paragraph 3, than to cling to this illusion. 6. SHAREHOLDERS RIGHTS IN RELATION TO THE GENERAL MEETING In light of our earlier remarks we feel it is inevitable that companies will need to facilitate electronic voting. For institutional investors this would mean an enormous alleviation of the beaucratic burdens. We therefore favour an obligation for companies to provide such facilities. As an alternative, this obligation could be linked to market capitalisation of the relevant company, allowing smaller companies to take a longer period before they will have to comply. -9/13-

10 As this is one of the basic rights any shareholder should have, we fully agree with this standard and even feel that it should not be possible to limit this right to written questions up front. We do acknowledge however that for reasons of keeping the order in a meeting, the chairman should have the authority to limit the right to speak in a meeting within reason. 1. We agree. 2. We prefer to set the limits at 1% of the share capital or a value of 50 million, whichever is the lowest. 3. We agree. -10/13-

11 We refer to our answers above, in particular to our opinion that it is inevitable that companies need to facilitate electronic voting. For institutional investors this would mean an enormous alleviation of the beaucratic burdens. We therefore favour an obligation for companies to provide such facilities. As an alternative, this obligation could be linked to market capitalisation of the relevant company, allowing smaller companies to take a longer period before they will have to comply.. We agree with all these minimum standards. We support the concept of an EU proxy form. We furthermore refer to our earlier remarks. -11/13-

12 7. POSITION OF INTERMEDIARIES IN THE CROSS-BORDER VOTING PROCESS This seems too simplified a definition. See our remarks in Paragraph 2. In that Paragraph we have outlined our preferred system of cross border voting. We refer to our remarks in Paragraph 2.

13 We fully agree. In addition we would like to add that split voting should always be possible, not only for intermediaries but also for the ultimate investor. 8. COMMUNICATIONS FOLLOWING THE GENERAL MEETING We fully agree with this level of transparancy. In order to adequately address the issues involving securities lending (see our remarks on Paragraph 3), it could even be considered to also provide for transparancy on the level of lending activity around the date of the general meeting. -13/13-