EU Council Shareholder Rights Directive (SRD)
The Council of the European Union adopted a directive in April to amend the currently existing Shareholders’ Rights Directive (“SRD”). The updated Directive is intended to strengthen shareholders’ engagement among listed European companies. The current revision focuses on strengthening long-term shareholder engagement and increasing voting transparency.
The amended SRD addresses:
- Augmented links between director performance and pay
- Shareholder voting rights regarding company remuneration policies for its directors
- The ability of companies to identify shareholders and allow intermediaries to facilitate the exercise of shareholders’ rights, with the aim of increasing shareholder participation and voting at general meetings
- Shareholder voting rights to approve related party transactions, and to increase transparency of such transactions
- Various other shareholder issues and rights
The amended SRD will be published in the EU’s Official Journal and will enter into force on the twentieth day after its publication. After that, the U.K. will have two years to transpose the Directive into law.
Shareholder Activism Trends in the U.K.
In the U.K., the perception of shareholder activism by institutional investors and the general public has changed. Compared with the U.S., U.K. shareholder activism is typically viewed as being less adversarial and confrontational. Activist investors aim for constructive conversations with management, with a high premium placed on collaboration. In response, institutional investors are adopting a greater willingness to increase shareholder value and adjust corporate governance standards.
In addition to this shift in perception, various factors may also be contributing to the growing support of activism in the U.K. Some of these factors include:
- Regulations that promote stronger corporate governance
- Greater access to investor information
- Influence of organizations that promote responsible long-term investing
- An inflow of capital into more activist hedge funds
With this shift in outlook toward activist shareholders, companies must now adopt different approaches to shareholder engagement and facilitate more transparency, cooperation, and constructive engagement.
Ongoing Hurdles for Shareholders
Even with the shifts in perception towards shareholders in the U.K., investors still face various legal and regulatory challenges. For instance, shareholders must adhere to rules governing disclosure and transparency. An example of this is the Financial Conduct Authority’s Disclosure and Transparency Rules (DTR 5), which require shareholders to notify a listed company of the percentage of voting rights that they hold if the percentage exceeds or falls below stated thresholds.
Other concerns shareholders must consider include:
- Claims for defamation or libel, especially in connection with shareholder campaigns that cause financial loss to a company or damage business reputation
- In regulated companies, shareholders should be conscious of changes of shareholdings that require regulator consent
- Insider dealing and dissemination of confidential information; shareholder agendas can sometimes be considered inside information
Lastly, shareholder liability is becoming an increasing concern, especially in the area of private equity.
Other Investor News
Various investment managers, shareholder groups, and lawyers initially welcomed corporate governance reform proposed by U.K. Prime Minister Theresa May prior to the June 8 parliamentary election. The proposals addressed issues like executive pay, ministerial intervention, and shareholder influence.
However, May’s party lost control of Parliament after the election, which may confound matters with formal Brexit talks beginning soon.
RBS Shareholder Settlement
In other news, a nine-year battle between the Royal Bank of Scotland (RBS) and dissatisfied shareholders recently ended at the High Court as a judge agreed to stop the proceedings. Shareholders alleged that RBS had misled them regarding the state of the bank’s financial health. A majority of RBS shareholders (a group of about 9,000 investors) have agreed to accept a £200m settlement; however, 13% of shareholders have not accepted the deal.
The 13% intend to eventually accept the settlement proposal, while only one investor with 2,000 shares stated that he was “dissatisfied” with the offer. Further action on the matter is unlikely due to high costs.
Shareholder issues in the U.K. are rapidly evolving along with a changing regulatory landscape. These matters affect both boards and investors, and have the potential to shape the future of company operations in the region. If you have any questions regarding shareholder rights and engagement, contact us at Kessler Topaz. Our lawyers are devoted to helping promote shareholder-friendly corporate governance measures and policies.