EU lawmakers back rewards for long-term shareholders

Sergio Cofferati []

Long-term shareholders in companies in the European Union will be rewarded with extra voting rights or loyalty dividends if a draft law backed by a panel of EU lawmakers comes into force.

The 28-country bloc is revising its shareholder rights rules to combat what critics call “short-termism” in stock markets where investors hold shares for only brief periods, making them less likely to hold company boards to account.

The European Parliament’s legal affairs committee narrowly backed key changes to the existing rules by 13 votes to 11 on Thursday (7 May).

Joint agreement between member states and parliament is needed for a revised law to take effect. More haggling is expected given its politically sensitive nature and narrowness of the committee’s majority.

The International Corporate Governance Network, a global investor-led body, said last month that departing from “one share, one vote” was flawed and potentially distorts the rights of minority shareholders.

Rewards for long-term shareholders would have to be in the form of extra voting rights, tax incentives, loyalty dividends or loyalty shares, the committee said in a statement.

Each country would decide on the qualifying period but it should be no less than two years.

The committee also backed shareholders voting at least every three years on pay policy for company directors. An attempt to insert a cap on pay into the policies was defeated.

The policy on director’s remuneration should state clear criteria for awarding fixed and variable remuneration, including all bonuses and benefits, MEPs said. This also covers details of supplementary pension or early retirement schemes, according to the amended text.

>> Watch the video: Commission proposes greater shareholder power over executive pay

The committee also supported requiring big companies to publish country-by-country information on profits or losses, taxes, and public subsidies.

Sergio Cofferati, a former Italian union leader and committee member who is steering the measure through parliament, urged parties on the right and centre not to block the tax-related elements.

“It is necessary to ensure more transparency in the activities of European companies,” said Cofferati, who is from the Socialists and Democrats (S&D) group. He called on other political parties to “support the fight against tax evasion and tax avoidance.”

Some countries have gone ahead with changes already.

France has introduced its Florange law which gives those who have held stock for more than two years double-voting rights unless a two-thirds majority votes for one-share-one-vote.

Shareholders at GDF Suez, a French utility, have voted to give double voting rights to long-term shareholders. But shareholders at cosmetics company L’Oreal voted to keep single voting rights.

Italy has approved a law that allows companies to give double voting rights to shareholders that own shares for at least two years, a step Fiat Chrysler Automobiles said it might take.

The proposed revision of the shareholders’ rights directive was presented by the European Commission in April 2014 as part of its corporate governance package.

Around 10,000 listed companies across Europe will be affected by the new law, which also regulates how companies pay their top executives.

Under the new draft law, EU companies would have to explain how their payment policies contribute to the long-term interests of the company. They would also have to set a maximum salary for executives.

The draft law has four main objectives, said Internal Market Commissioner Michel Barnier, who presented the proposal:

  • Allow easier identification of shareholders
  • Increased transparency of institutional investors and asset managers
  • Greater transparency for so-called proxy advisors
  • Better conditions for shareholders so that they can monitor policy on remunerations

>> Watch the video: Commission proposes greater shareholder power over executive pay

European Parliament

Euopoean Commission

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