Documents considered by the Committee on 1 March 2017 Contents

12Shareholder rights

Committee’s assessment

Legally important

Committee’s decision

Cleared from scrutiny; drawn to the attention of the Business, Energy and Industrial Strategy Committee

Document details

Proposal for a Directive 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 base

Articles 50 and 114 TFEU; ordinary legislative procedure; QMV


Business, Energy and Industrial Strategy

Document Number

(35957), 8847/14 + ADDs 1–3, COM(14) 213

Summary and Committee’s conclusions

12.1This proposal amends the existing Shareholders’ Rights Directive79 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 below.

12.2We last reported on this proposal in September 2015 when we gave the Minister a scrutiny waiver to agree the General Approach of the Council to trilogue negotiations with the European Parliament. This was subject to the conditions that (a) the general approach remained within the bounds of the UK’s corporate governance framework and (b) the provisions for EU subordinate legislation did not change from the latest compromise text.

12.3The previous Minister (Baroness Neville-Rolfe) provided helpful updates of the negotiations with the European Parliament and the current Minister (Margot James) now provides details of the outcome of those negotiations and seeks clearance of the document from scrutiny in order that the Government may vote in favour.

12.4She indicates that the European Parliament dropped its demand for country-by- country tax reporting and the outcome is “broadly consistent both with the UK’s existing framework as well as the Prime Minister’s focus on corporate governance reform”.

12.5We are grateful for the update from the Minister and are now content to clear this proposal from scrutiny. In view of the sensitivity of the provisions on Director’s remuneration we set out the current version of the text in full below. We draw this Report to the attention of the Business, Energy and Industrial Strategy 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.


12.6The proposal from the Commission covered:

12.7In the course of negotiations with the European Parliament the Committee were informed83 that the most difficult matter outstanding was the European Parliament insistence on using this proposal as a vehicle for county-by-country reporting on tax. Other outstanding matters of a political nature involved (by reference to the amendments proposed to Directive 2007/36):

The Minister’s Letter of 24 February 2017

12.8In her letter the Minister informs the Committee that trilogue negotiations ended on 7 December 2016 with agreement. Notably the European Parliament has dropped its claim for country-by-country tax reporting. It is expected that the proposal will be adopted in March by the Council following formal agreement by the European Parliament in plenary.

12.9She provides the following assessment of the outcome:

“While at this stage I am not able to anticipate the impact of Brexit on the transposition of EU proposals, the measures proposed by this Directive are broadly consistent both with the UK’s existing framework as well as with the Prime Minister’s focus on corporate governance reform.

“Following two years of negotiations, all the UK Government’s objectives have been achieved. While we welcomed the proposal for an EU wide framework, which would facilitate investors’ stewardship activities and enhance transparency across Member States, we have been mindful not to accept unhelpful and burdensome compliance exercises.

“The main changes, which the Government has consistently supported, are limited to measures aimed at increasing transparency amongst institutional investors and asset managers. The impact of the new requirements is moderated by a ‘comply or explain’ approach. With regards to the transparency measures for proxy advisers, these are less prescriptive than originally envisaged in the Commission proposal and have been generally welcomed by stakeholders.

“In areas such as: facilitation of shareholders’ rights, executive remuneration and related party transactions, the provisional agreement enables the UK to retain its current regime.

“We have also succeeded in ensuring the Directive would not introduce delegated acts. The scope for the Commission to adopt implementing acts is subject to ‘comitology’ procedure, therefore still allowing EU member states representatives to take part in their development. In this particular instance, such acts will also be limited to identifying technical standards, in order to facilitate the transmission of information and exercise of shareholders’ rights.

“In line with previous correspondence with both you and Lord Boswell, I am satisfied that this minimum harmonisation directive leaves Member States appropriate levels of flexibility and will have a low impact on our current corporate governance framework. I attach the latest compromise text for your information.”

Previous Committee Reports

Third Report HC 342-iii (2015–16), chapter 10 (9 September 2015); Thirty-seventh Report HC 219-xxxvi (2014–15), chapter 6 (18 March 2015); Thirtieth Report HC 219-xxix (2014–15), chapter 2 (21 January 2015); First Report HC 219-i (2014–15), chapter 4, (4 June 2014).

79 Directive 2007/36.

80 Intermediaries would be defined as a company resident in the EU which maintains securities accounts for clients.

81 Assets managers are providing portfolio management services to institutional investors.

82 Proxy advisors provide recommendations to shareholders on the exercise of their voting rights.

83 Letter of 14 July 2016.

3 March 2017