Centre Shareholder Governance

Transcription

1 AT Centre Shareholder Governance THE NEW SHAREHOLDER S RIGHTS DIRECTIVE: IMPACT ON BELGIAN SHAREHOLDERS AND COMPANIES June 7 th 2017 The Centre Shareholder Governance, in collaboration with its partners Ageas, Deloitte/Laga and KBC Securities organized a fourth round table on shareholder governance in Europe. After the inspiring round tables on the Nordic, UK, and French shareholder model, the central topic for this round table was the recently adopted Shareholder s Rights Directive and its impact on Belgium. What did we learn? The round table started with an introduction on the new Shareholder s Rights Directive by Mr. Emmanuel Leroux (Laga). He explained that the Directive encompasses five main topics: (a) identification of shareholders, (b) related-party transactions, (c) role of intermediaries in facilitating the exercise of shareholders rights, (d) say on pay, and (e) shareholder engagement for institutional investors, asset managers and proxy advisors. Please find the most distinctive aspects of each of the elements in the Side Text Box. For a more elaborated review, we kindly refer you to the presentation of Emmanuel Leroux on our website. Mr. Leroux emphasized that it is a Directive of compromise. It took years of negotiations to find a consensus among the member states. To attain this goal, the Directive had to be restricted to broad principles rather than strict rules. (a) Identification of shareholders Companies are granted the right to identify their shareholders in order to foster direct dialogue. Member states will define the ownership threshold, which will not exceed 0.5%. (b) Related-party transactions Member states must define what material related-party transactions are. The Directive calls for approval by the shareholders or the board for such material transactions. Companies also have to announce publicly these transactions at the time of their conclusion, including all necessary information to assess their fairness. Member states may require the announcement of the related-party transaction to be accompanied by a fairness opinion from an independent actor. They may install a different ownership threshold for this.

2 (c) Facilitating the exercise of shareholders rights Intermediaries transmit without any delay to the company the information received from the shareholders related to the exercise of the rights flowing from their shares, and vice versa. Intermediaries take the necessary arrangements to enable the shareholder or a nominated third party to exercise their rights at a shareholders meeting. (d) Say on pay Shareholders are granted a binding vote on the remuneration policy, albeit the member states may decide that the vote is advisory. The Directive provides an advisory vote on the remuneration report. New for Belgium: it includes a.o. the annual change of the remuneration over a period of at least 5 years, the evolution of the company performance, and the average remuneration of employees other than directors. (e) Institutional investors, asset managers and proxy advisors Institutional investors and asset managers should publicly disclose an engagement policy that describes how they integrate shareholder engagement in their investment strategy and how they implement this policy on an annual basis. Proxy advisors should publicly disclose reference to a code of conduct and report on the application of this code & publicly disclose on an annual basis at least all information related to the preparation of research, advice and voting recommendations. In this regard, Mr. Thomas Leysen emphasized that the Directive is a missed opportunity to harmonize corporate governance rules across Europe and in so doing get a step closer to developing a level playing field across countries. Prof. dr. Hans De Wulf (UGent) drew on the introduction of Mr. Leroux to elaborate on the implications of the Directive for Belgium and in particular the (new) Belgian Company Law. As a co-author of this new Law, he is well suited to fulfil this role. He started by explaining that although the Directive includes a variety of topics, it does not necessarily demand many alterations to Belgian law since the Directive provides quite a lot of leeway for implementation. Moreover, its principles are rather broad, as already indicated by Mr. Leroux. Our legislation is already largely in line with the Directive. In fact, our legislator may choose to adopt the least restrictive rules as hard law and leave it to Euronext listing rules and/or the (new) Belgian Code on Corporate Governance ( Code ) to specify refinements using the well-known principle of comply-or-explain. Mr. Leysen added that it would be beneficial for Belgium to implement the Directive in line with other member states. The regulator may wield at first a wait and see - attitude to observe how other countries implement the Directive, and sub-sequently adapt Belgian legislation accordingly. In doing so, the Directive may bring us a step closer to a level playing field for shareholders and companies in Europe. Prof. dr. De Wulf elaborated on the clauses related to the identification of shareholders, say on pay and related-party transactions. More details on the presentation of Prof. dr. De Wulf can be found on our website. In privileged preview, the presentation also provides insight in some of the proposed changes to the new Company Law, in particular with respect to article 524 on related-party transactions. Below we list his main ideas together with those of our panel members: Mr. Leysen (KBC Group; Corporate Governance Committee) and Mr. Robbert Gerritsen (ISS).

3 Identification of shareholders In Belgium, the current threshold for shareholder identification is 5%. This threshold can be lowered to 1%, if the company s articles of association provide so. The Directive installs a maximum threshold of 0.5%. From the perspective of prof. dr. De Wulf, there is little reason to legally oblige all Belgian listed companies to lower their threshold and thus force shareholders to disclose their identity, if a company does not explicitly asks for this information. Hence, he expects that Belgian Company Law will provide companies the possibility to lower their threshold for shareholder identification from 1% to 0.5% through an alteration of their articles of association. As this type of change requires a super-majority vote in the general meeting, it may foster some competition among shareholders favouring and opposing identification. Related-party transactions Business transactions between the company and a shareholder, director, or another related-party entail the risk that they appropriate value at the detriment of the company. To limit this risk, the Directive obliges member states to define what so-called material transactions are. Prof. dr. De Wulf explains that inspiration for such a definition might be found in article 524 of our Belgian Company Law, which refers to transactions involving more than 1% of the net assets. One of the more substantial changes in the Directive is that these material related-party transactions will have to be disclosed at the latest at the time of closing of the transaction, which is much earlier than the publication of the annual report. In all likelihood, the only way to do so is through publication of a report per transaction on the company s website. Mr. Gerritsen welcomes the rules fostering transparency and communication on these transactions. However, who will enforce this if only insiders know that there is or has been a related-party transaction? Prof. dr. De Wulf further highlights that Belgian legislation is quite weak with respect to related-party transactions. In fact, it is even less restrictive than the legislation in Delaware. As the Directive provides a lot of flexibility, the change may be minimal if we opt for the least restrictive option. As Chairman of the Corporate Governance Committee, Mr. Leysen, emphasized that it is not feasible to install stricter rules on related-party transactions through the Code and its comply-or-explain -principle.

4 Say on pay One can say that the Directive is unlikely to induce many changes in Belgian regulation with respect to say on pay, dixit Prof. dr. De Wulf. After all, Belgian listed companies already have to disclose a quite extensive remuneration report on an annual basis. Moreover, the shareholders can give their opinion on this report as they have the legal right to vote on the (dis-)approval of this report at the general meeting. Nevertheless, the Directive may foster some changes to the reporting: - In all likelihood, the current report has to be divided in a general remuneration policy and an annual remuneration report; - The remuneration report has to provide more detailed information such as the annual change in the remuneration of the directors over a period of minimum the last 5 years; the evolution of the company performance; and the average remuneration of employees other than directors. For many of these elements, the Directive is rather vague with respect to the definition. For example, what is meant by company performance? How will it be measured? According to Prof. dr. De Wulf, the Belgian legislator is unlikely to clarify these elements. Will the new Code provide some recommendations on this matter? - The Directive further specifies that for SMEs, member states may provide that the remuneration report is submitted for discussion at the annual general meeting, as an alternative to a vote. Mr. Gerritsen believes that it would be better to provide shareholders a vote on this report, and preferably a binding rather than an advisory vote. The underlying idea being that this would strengthen the monitoring power of shareholders. Mr Leysen emphasized the need for an effective dialogue between the company on the one-hand and proxy advisors/ shareholders on the other. Proxy advisors. Will the Directive influence how the proxy voting industry works? Will it foster dialogue between companies and proxy advisors? Mr. Gerritsen believes that it is too early to answer these questions. However, over the past years, the proxy advisors industry has taken multiple initiatives to foster transparency and greater understanding in terms of what companies can rightfully expect from proxy advisors. In particular, several proxy advisors collaborated already in 2013 to publish a referent code of conduct: The Best Practice Principles for Shareholder Voting Research & Analysis. Based on the feedback from institutional investors, issuers and other stakeholders, these Principles were amended in the last

5 quarter of 2013 and this year a new evaluation will take place (GUBERNA, representing ecoda, will be a part of the revision panel). Moreover, ISS will collaborate with the Corporate Governance Committee to investigate the alignment of the proxy voting statements for Belgian listed companies with the Code Ideally, this research would provide some suggestions to align the voting advice of proxy advisors to the characteristics of Belgian companies. However, the question remains: will the Directive improve the understanding and dialogue between companies and proxy voters? Conclusion The discussion touched upon numerous challenges and opportunities for shareholder governance in Belgium such as say on pay, related-party transactions and proxy advisors. Whether the Directive will have a large impact on Belgian companies and shareholders remains to be seen. Anyway, GUBERNA will further invest in reflecting on the translation of the shareholder rights directive into Belgian law and consult with its experts and members on the preferred choices as to the degrees of freedom offered. For more information, please contact david.szafran@szafran.be Rue de la Montagne 1000 Bruxelles t +32 (0) Reep Gent t +32 (0) info@guberna.be guberna.be