Documents considered by the Committee on 18 March 2015 - European Scrutiny Contents

6 Shareholder rights

Committee's assessment Legally important
Committee's decisionNot cleared from scrutiny; further information requested; conditional scrutiny waiver granted
Document detailsDirective amending Directive 2007/36 as regards the encouragement of long-term shareholder engagement and Directive 2013/34 as regards certain elements of the corporate governance statement
Legal baseArticles 50 and 114 TFEU; ordinary legislative procedure; QMV
DepartmentBusiness, Innovation and Skills
Document numbers(35957), 8847/14 + ADDs 1-3, COM(14) 213

Summary and Committee's conclusions

6.1 This proposal amends the existing Shareholders' Rights Directive (2007/36) by introducing new provisions intended to facilitate the exercise of shareholders' rights, give shareholders a greater say over directors' remuneration and increase transparency in respect of: the strategies of institutional investors and asset managers; the activities of proxy advisors; directors' remuneration; and related party transactions. Further details are set out in our Report of 4 June 2014.

6.2 The Government have been broadly supportive of this proposal and have been negotiating with a view to it more fully reflecting the UK's approach to corporate governance.

6.3 The only matter outstanding from our previous consideration was an assessment by the Government of the Commission's power to adopt subordinate legislation. This was first raised in its Explanatory Memorandum of 1 May 2014.

6.4 The Minister for Employment Relations and Consumer Affairs and Minister for Women and Equalities (Jo Swinson) now provides an update on negotiations, and helpfully provides the current text (on which we are unable to explicitly report as it remains classified as limité). She indicates that there are expected to be further working group meetings of the Council, that other Member States are broadly satisfied with the current text, that the Latvian Presidency is only expected to provide an update on this matter, and that the Legal Affairs Committee of the European Parliament may have difficulty in adopting its report as scheduled in March as over 300 amendments to it have been received. Her letter does not provide a Government view on the provisions for subordinate legislation to be adopted by the Commission.

6.5 We are grateful for the update from the Minister. She has asked for clearance from scrutiny, but we consider that this would be premature. However, given her assessment that the current Council text "will have a low impact on our current corporate governance framework" we are prepared to grant a waiver from scrutiny to enable her to agree a General Approach in the Council, should the Presidency seek one, subject to the conditions that (a) any further changes to the text remain within the bounds of the UK's corporate governance framework, and (b) that the provisions for subordinate legislation do not change from the current text.

6.6 Should a General Approach be agreed we ask the Minister to provide a copy of the text with a commentary as to the changes from the current text and an analysis of the prospects for trialogue negotiations with the European Parliament. If not we ask the Minister to provide an update to the new Committee.

Full details of the documents: Proposal for a Directive amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EU as regards certain elements of the corporate governance statement: (35957), 8847/14 + ADDs 1-3, COM(14) 213.

The Minister's letter of 2 March 2015

6.7 In addition to the matters summarised above, the Minister assesses the progress of negotiations to date:

    "We have achieved the main aims of the negotiation and, while officials will continue to negotiate in line with the UK government's agreed position, we consider that the latest text does reflect our position.

    "I am satisfied that this minimum harmonisation directive will have a low impact on our current corporate governance framework. The main changes, which we support, will be limited to measures aimed at increasing transparency amongst institutional investors, asset managers and proxy advisers. The impact of the new requirements will be moderated by a 'comply of explain' approach."

Previous Reports

Thirtieth Report HC 219-xxix (2014-15), chapter 2, (21 January 2015); First Report HC 219-i (2014-15), chapter 4, (4 June 2014).

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Prepared 27 March 2015