New tools to sharpen big EU firms’ focus on their long-run performance, by fostering their shareholders’ commitment to it, were approved by the EU Parliament on Tuesday. They will include giving shareholders a say on directors’ pay and making it easier for firms to identify their shareholders.

Rapporteur Sergio Gaetano Cofferati (S&D, IT) said: “The agreement on the Shareholders’ Rights Directive approved today by the EP plenary is very positive. The measures agreed upon will help to steer investments towards a more long-term oriented approach and will ensure more transparency for listed companies and investors.”

The resolution was passed by 646 votes to 39, with 13 abstentions

Shareholders’ “say on pay”

These tools, informally agreed upon by Parliament and Council negotiators in December 2016, will empower shareholders to vote on remuneration policy for company directors, thus enabling them to tie it more closely to the company’s performance and long-term interests.

They will also enable companies to identify their shareholders more easily and thus facilitate dialogue with them, as well as making it easier for shareholders to exercise their rights, including the right to participate and vote in general meetings.

Furthermore, certain potentially prejudicial transactions will have to be publicly disclosed and approved through procedures guaranteeing the protection of the interests of companies and their shareholders.

New transparency requirements

The rules introduce new transparency requirements for institutional investors, such as pension funds and life insurance companies, and asset managers, who are often important shareholders of listed companies in the EU. Institutional investors and asset managers will be required to publicly disclose a policy describing how they integrate shareholder engagement in their investment strategies or explain why they have chosen not to do so.

Furthermore, proxy advisors who provide research and recommendations on how to vote in general meetings to their clients, will have to disclose key information, e.g. the main information sources and methodologies applied, relating to the advice they provide.

Mr Cofferati also underlined that “thanks to Parliament’s efforts on this directive, the European Commission has also proposed a specific new legislative proposal on public country-by-country reporting by multinationals on tax matters, which needs to be approved as soon as possible.”

Next steps

The draft law still needs to be formally approved by the EU Council of Ministers.

Member states will have 24 months from the date of entry into force of the directive to bring the new rules into force.