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Shareholder Rights Directive - may the IVth be with you

Waiting for the Shareholder Rights Directive is a bit like Waiting for Godot

It was July 2015 when the plenary session of the European Parliament approved the Commission’s proposal for a revised Shareholder Rights Directive (SRD). The original SRD was introduced in 2007, with amendments in 2010. The current deliberations concern a 2014 proposed amendment and make this iteration SRD III. No doubt SRD IV will emerge at some point in the future.

Although the Commission’s 2014 proposal was approved by the European Parliament some of the amendments to the draft made the Committee on Legal Affairs (JURI) were rejected.

In fact the changes to shareholder rights with regard to executive pay now look decidedly anaemic, and the list of regulatory changes that have been dropped or rejected from the amended directive is getting longer.

Among the more significant changes that have been thrown overboard in an effort to get the SRD through are:

• A binding shareholder vote on remuneration policy
• Mandatory employee consultation on executive pay proposals
• The extension of new remuneration rules beyond listed companies to all large companies (not just listed ones). It is ironic that some privately-owned UK companies, such as BHS and Austin Reed, which might have benefited from a longer term perspective, have gone into administration in the time it has taken the EU to agree a directive with an objective of “contributing to the long-term sustainability of EU companies”
• The requirement to state a maximum as part of remuneration policy disclosure

It is worth noting that the UK’s own legislature took a different view on these matters when introducing changes to the executive pay regime in 2013. The binding vote on remuneration policy is mandatory in the UK but has been made optional under the SRD proposals. UK companies are obliged to report on whether they have consulted employees on directors pay. The maximum amount expected to be paid out to individual executive directors under shareholder approved remuneration policy must also be disclosed by UK companies.

The UK’s regulatory reach already far exceeds the EU’s limited ambition on accountability for executive pay, and worse still the diluted EU pay proposals have not yet been approved by the “trialogue”. No agreement has yet been reached with the council.

Attempts to reform shareholder rights at a European level on directors pay, however limited, could still fall by the wayside. During the committee stage the European Peoples Party (EPP), European Conservatives and Reformists (ECR) and the Alliance of Liberals and Democrats for Europe (ALDE) groups that had opposed some of the changes which form part of the UK regime requested that the Council of Presidents suspend the mandate for trilateral negotiations between Parliament, Council and Commission.

Like Hollywood sequels SRD IV seems somehow inevitable. Perhaps when it arrives they could use the strapline: “this time it’s meaningful”.

Posted on 29 April 2016

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