EU Shareholders Rights Directive

 

The revised EU Shareholder Rights Directive, adopted in June 2017, introduces new requirements on proxy advisors operating in the EU. These will take effect in June 2019, by which time all EU Member States must have implemented the requirements in national law.

The requirements are set out in Article 3(i) of the Directive:

Paragraph 1

Member States shall ensure that proxy advisors publicly disclose reference to a code of conduct which they apply and report on the application of this code of conduct.

Where proxy advisors do not apply a code of conduct, they shall provide a clear and reasoned explanation why this is not the case. Where they depart from any of the recommendations of the code of conduct, they shall declare which parts they depart from, explain reasons for doing so and indicate, where appropriate, any alternative measures adopted.

Information referred to in this paragraph shall be made publicly available, free of charge, on the websites of proxy advisors and shall be updated on an annual basis.

Paragraph 2

Member States shall ensure that, in order to adequately inform their clients about the accuracy and reliability of their activities, proxy advisors publicly disclose on an annual basis at least all of the following information in relation to the preparation of their research, advice and voting recommendations:

  • the essential features of the methodologies and models they apply;
  • the main information sources they use;
  • procedures put in place to ensure quality of the research, advice and voting recommendations and qualifications of the staff involved;
  • whether and, if so, how they take national market, legal and regulatory and company-specific conditions into account;
  • the essential features of the voting policies they apply for each market;
  • whether they have dialogues with the companies which are the object of their research, advice or voting recommendations and with the stakeholders of the company, and, if so, the extent and nature thereof;
  • the policy regarding the prevention and management of potential conflicts of interests

Information referred to in this paragraph shall be made publicly available on the websites of proxy advisors and remain available free of charge for at least three years from the day of publication. The information does not need to be disclosed separately where the information is available as part of the disclosure under paragraph 1.

Paragraph 3

Member States shall ensure that proxy advisors identify and disclose without delay to their clients any actual or potential conflicts of interest or business relationships that may influence the preparation of their research, advice and voting recommendations and the actions they have undertaken to eliminate, mitigate or manage the actual or potential conflict of interest.”

The Directive defines a proxy advisor as being “a legal person that analyses, on a professional and commercial basis, the corporate disclosures and, where relevant, other information of listed companies with a view to informing investors’ voting decisions by providing research, advice or voting recommendations that relate to the exercise of voting rights”.