Eddie HallConsultation

The Independent Review Chair of the Best Practice Principles for Shareholder Voting Research & Analysis Group (the “BPPG”), Danielle A.M. Melis Ph.D. today (8-April-19) provided an update summarizing initial feedback from the 2019 BPP Review Stakeholder Advisory Panel, as part of the BPP Review to be completed by June 2019.

The BPP Review refers to the latest updated stewardship codes globally, the requirements of the revised EU Shareholder Rights Directive II (“SRD II”) and the ESMA 2015 Follow-Up Report on the Development of the Best Practice Principles for Providers of shareholder voting research and analysis (“2015 ESMA Follow-Up Report”).  It also refers to the input of investors, issuers and other stakeholders received through a public consultation by the BPPG (completed in December 2017).

This initial stage of feedback from the 2019 BPP Review Stakeholder Advisory Panel was provided on a call, held in March 2019, and was structured to focus specifically on the following key areas:

  1. The Scope of the new Principles
  2. The Principles’ ‘Apply or Explain’ Framework
  3. The proposed Governance and Oversight Structure for the Principles

The final stage of feedback from the 2019 BPP Review Stakeholder Advisory Panel will be provided on a call to be held in May 2019, which will focus on finalizing the Principles themselves. Prior to publication of the Principles in June 2019, in the first half of 2019, the BPPG will provide intermediate quarterly updates and mid 2019 it will organize a final roundtable process for gathering feedback on the proposed amendments from stakeholders including issuers, investors and regulators.

Summary of March 2019 initial feedback from the 2019 BPP Review Stakeholder Advisory Panel

1. The Scope of the new Principles

The Principles have been developed to be applied by providers of shareholder voting research & analysis globally, even though the Principles were originally conceived as a soft-regulatory mechanism in the European Union (“EU”). Of note, although the new SRD II Article 1 refers to a short, relatively narrow definition of “proxy advisor”[1], the scope of the Principles is broader than this definition. The 2015 ESMA Follow-Up Report highlighted that the comply-or-explain principle on which the Principles are based allows for tailored implementation based on each BPP Signatory’s characteristics. Therefore, entities that fall partially under the definition of the Principles should be able to – and are encouraged to – apply the Principles to the appropriate extent.

The 2019 BPP Review Stakeholder Advisory Panel acknowledged that the new draft of the Principles is responding to obligations imposed by SRD II but is also taking opportunities to broaden the scope and representativeness. The panel reiterated that it is important for the Principles to reflect the core purpose outlined in SRD II.

2. The new ‘Apply or Explain’ Framework

The Principles have been drafted to be implemented on an “Apply or Explain” basis. This enables each Signatory to explain how the Principles relate to their specific circumstances and business model. In line with the new requirements of SRD II, each BPP Signatory shall be responsible for updating its Statement of Compliance on an annual basis.

The 2019 BPP Review Stakeholder Advisory Panel highlighted that a stronger “Apply and Explain” model for the Principles themselves should be inferred from SRD II Article 3j and if signatories depart from any of the Principles’ Recommendations, they should properly explain how they do so.

3. The new Governance and Oversight Structure for the Principles

This was a key recommendation from the 2015 ESMA Follow-Up Report, and was also supported by investors, companies and other stakeholders in the Public Consultation by BPPG completed in December 2017. The proposed new governance structure is complementary to the requirements set out in SRD II, as well as regulatory developments in other markets globally, since the Principles were introduced.

The 2019 BPP Review Stakeholder Advisory Panel was extremely positive regarding the BPPG’s progress on introducing a new formal governance and oversight structure as part of the updated Principles and Guidance. It was highlighted that further specification should be provided on which types of representatives should be part of the Oversight Committee to reflect different models of governance and how representative they are across the world. The BPP Review’s proposal to introduce independent monitoring of BPP Signatories’ annual Statements of Compliance, was commended as a further positive governance and oversight measure.

Background

In October 2018 the BPPG Steering Group appointed Dr. Danielle A.M. Melis MBA, to succeed Chris Hodge as the new Chair of the BPPG. Chris Hodge served in this role until June 2018 and completed the public consultation phase. The main task of the Chair is to oversee the BPPG Steering Group and coordinate and facilitate the finalization the Review process as outlined below.

The purpose of the BPP Review is to: 

  1. Assess the implementation and content of the Principles;
  2. Ensure that the Principles are achieving the original objectives;
  3. Identify where there is scope to improve practice and transparency; and
  4. Ensure the Principles can be applied in all markets for which voting research and analysis is provided, and by all providers of such services.

The original objectives of BPPG in establishing the Principles was to:

  • Promote a greater understanding of the role of shareholder voting research providers in the voting decisions made by institutional investors;
  • Promote the integrity and efficiency of processes and controls related to the provision of these research services; and
  • Foster robust conflicts of interest management.

The assessment of the Principles will involve consideration of:

  • The structure and content of the Principles;
  • The form and frequency of reporting against the Principles;
  • The process and criteria for providers to become signatories; and
  • The oversight arrangements for monitoring and reviewing the Principles.

The BPP Review will be informed by (but not limited to):

  • The views of investors, companies and other stakeholders received through the Public Consultation by BPPG completed in December 2017;
  • Experience of implementing the Principles since they were introduced in 2014;
  • The December 2015 report on the development and implementation of the principles by the European Securities and Markets Authority;
  • The revised EU Shareholder Rights Directive and regulatory developments in other markets since the Principles were introduced; and
  • Investor Stewardship Codes

For more information please contact: committee@bppgrp.info

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[1] SRD II definition: “(g) “proxy advisor” means a legal person that analyses, on a professional and commercial basis, the corporate disclosure 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;”