ESBG RESPONSE TO THE EUROPEAN COMMISSION S CONSULTATION ON THE RECOMMENDATIONS SUPPLEMENTING THE SHAREHOLDERS RIGHTS DIRECTIVE

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1 ESBG RESPONSE TO THE EUROPEAN COMMISSION S CONSULTATION ON THE RECOMMENDATIONS SUPPLEMENTING THE SHAREHOLDERS RIGHTS DIRECTIVE 31 July 2007

2 DOC 0698/07 The European Savings Banks Group (ESBG) welcomes this opportunity to comment on the Commission s proposal for recommendations to supplement the Directive of the European Parliament and of the Council on the exercise of voting rights by shareholders of companies having their registered office in a Member State and whose shares are admitted to trading on a regulated market (the Shareholders Rights Directive). We consider that the Commission s initiative to consult is positive, as it aims to bring clarity to a number of important questions that were not addressed directly in the directive. Question 1 (Language of meeting documents) Q 1.1.: Q 1.2.: Do you think there is a need for action in that area? If your answer is yes, do you think a recommendation along the following lines would go into the right direction? "1. Companies should make available to their shareholders the convocation for a general meeting, the meeting agenda and the documents to be submitted to the general meeting at least also in a language customary in the sphere of international finance, unless the General Meeting decides to the contrary. 2. Point 1 should not apply to companies - that fulfil at least two of the criteria established by Article 11 of the Fourth Company law Directive on annual accounts (not exceeding a balance sheet total of EUR , a net turnover of EUR and an average number of employees during the financial year of 50), or - that neither have a wide foreign shareholder base (on average under 10% of the subscribed capital) nor are actively seeking foreign investment. For these companies, the obligation referred to in point 1 should only apply where this is requested by shareholders representing at least 1/3 of the subscribed capital." From our point of view there is no need for action in this area. Nevertheless, if the Commission decides to make a recommendation, we consider that documents translated into a language customary in the sphere of international finance should be obligatory only after a vote by the shareholders to that effect, or upon request by shareholders representing a certain minimum percentage of capital. Alternatively, as it is known from other areas of law, a differentiation could be considered whether or not the company is also admitted to a foreign regulated market. In the latter case the company would expressly have made itself available to foreign investors and would thus be committed to support its investors by translating the documents of the shareholders meetings. Furthermore, only a so-called convenience translation should become compulsory. Otherwise the translation could pose a high risk for appeals or liability on the stock company. In case of a discrepancy between the translation and the original version, the original version must prevail. 1

3 Question 2: Do you think a recommendation along the following lines would go into the right direction? "The depositary agreement should provide that the depositary is not allowed to vote on the shares without instructions given by the depositary receipt holder, unless the latter has given the depositary explicitly such discretion." The ESBG considers that there is no need for action by the Commission in this field. In a number of Member States, the current situation is that the depositary is not allowed to vote on the shares without instructions and proxy given by the depositary receipt holder for each general meeting. Should a need for action however be considered vital at European level, the recommendation text should contain a clarifying supplement that a permanent authorization or empowerment is also permitted, so that the instruction does not have to be repeated every year. Question 3: Q 3.1: Do you believe that stock lending needs to be addressed at EU level? Please give your reasons. Q 3.2: If your answer is yes, would you support recommendations along the following lines? "1. Stock lending agreements should contain provisions informing the relevant parties of the effect of the agreement with regard to the voting rights attaching to the transferred shares. 2. Member States should ensure that shares can only be lent by financial intermediaries where the investor has explicitly agreed to his shares being used for stock lending in the framework agreement with his financial intermediary. 3. Borrowed shares should not be voted, except where the voting rights are exercised on instructions from the lender. 4. Stock lending agreements should provide that borrowers have to return equivalent shares to those borrowed promptly upon the lender s request." Agreements on stock lending are a vital instrument for the operation of the financial markets. However, we do not see any justification in putting forward a recommendation which would deal specifically with stock lending. Although we agree with the objective of transparency in stock lending arrangements, we consider that such a recommendation limits the freedom of contract and may have a harmful impact on the market. 2

4 Question 4: Q 4.1: Do you consider that the duties of intermediaries in the voting process needs addressing? Q 4.2: If your answer is yes, would you consider recommendations along the following lines as adequate? "1. Member States should ensure that before entering into relevant agreements, intermediaries explain to clients whether, and if so how, they will be able to give instructions about the exercise of voting rights. 2. Where a client is entitled to give instructions about the exercise of the voting right, Member States should ensure that financial intermediaries that are part of the chain of intermediaries between that client and the issuer either cast votes attached to shares in accordance with the clients' voting instructions, or transfer the voting instructions to another intermediary higher up in the chain. 3. Financial intermediaries should keep a record of the instructions and provide confirmation that they have been carried out or passed on for a period of at least one year. 4. Member States should ensure that fees charged by intermediaries for the services referred to above do not exceed substantially the actual costs incurred by that intermediary. 5. Member States should ensure that intermediaries take the necessary measures to have the client's name registered in the register of companies which have issued registered shares. This obligation should not apply where the client objects to his name being registered. 6. "Client" within the meaning of this provision is the natural or legal person on whose behalf another natural or legal person holds shares in the course of a business.5" We consider that there is no need for action by the Commission concerning intermediaries, as the situation is dealt with in article 19 of the MiFID implementing directive. The term relevant agreements is completely undefined, and it will not help in order to guarantee shareholders rights benefits, as its definition will be under the jurisprudence of the country. In the opinion of the ESBG, the recommendation in relation to the fees charged by intermediaries is in contradiction with the principles of a free market economy. The intermediaries in this case always act on behalf of the issuer; therefore the issuer should also be responsible for costs which may arise. Thus, it is regrettable that the European Commission in its recommendation up for discussion waives a regulation of cost objects and instead stipulates an upper price limit in sub-item 4. In our opinion the obligation to bear the costs should be assessed on its merits; the pricing as such, however, should be left to competition. The opinion of the European Commission, that intermediaries should be made responsible for the registration of the economically entitled shareholders, needs careful consideration. Already today intermediaries in some countries are obliged to pass on the data of the customers buying nominal shares to the share register. This will not take place, however, if the customers object to the registration. Therefore it is possible that a general registration duty might reduce the attractiveness of the nominal share considerably. In any case, we consider the limitation of the registration duty as mentioned in sub-item 5 for economically entitled shareholders - which says that registration must not take place if the customer objects - as appropriate. Generally, the shareholders should have the right to remain anonymous to the corporation because the share has been conceived as an anonymous investment. 3

5 Question 5: Would you agree that the transparency directive, once implemented, will give a breakdown of voting rights and that further action at EU level would be premature? We consider that before developing other legislative initiatives, the Commission should take into account that the implementation of the transparency directive needs to be consolidated. Question 6: Do you think there is a need for a recommendation along the following lines? "1. Management companies, the regular business of which is the management of collective investment schemes, shall be deemed to be 'clients' for the purposes of the draft recommendations set out in section V Member States should ensure that management companies referred to in point 1 shall be permitted to cast votes attaching to some of the shares differently from votes attaching to the other shares." We agree with the European Commission s recommendation as set out in question 6.2. At shareholders meetings, a management company should be able to exercise the voting rights of the shares that the company manages in different ways. This possibility of voting right splitting for management companies should be made available in all EU member states. 4

About ESBG (European Savings Banks Group) ESBG (European Savings Banks Group) is an international banking association that represents one of the largest European retail banking networks, comprising

6 About ESBG (European Savings Banks Group) ESBG (European Savings Banks Group) is an international banking association that represents one of the largest European retail banking networks, comprising about one third of the retail banking market in Europe, with total assets of 5215 billion (1 January 2006). It represents the interest of its members vis-à-vis the EU Institutions and generates, facilitates and manages high quality cross-border banking projects. ESBG members are typically savings and retail banks or associations thereof. They are often organised in decentralised networks and offer their services throughout their region. ESBG member banks have reinvested responsibly in their region for many decades and are one distinct benchmark for corporate social responsibility activities throughout Europe and the world. ESBG - Association internationale sans but lucratif/internationale vereniging zonder winstoogmerk/ International not-for-profit association Rue Marie-Thérèse, 11 B-1000 Brussels Tel: Fax : Info@savings-banks.eu Published by ESBG in July

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