EU Shareholder Rights Directive reforms: A step towards greater transparency

28th April 2014

MGI World EU Shareholder Rights Directive reforms: A step towards greater transparency

Recent reforms to shareholder engagement and corporate governance are a vital step towards greater transparency.

This is the opinion of the Association of Chartered Certified Accountants (ACCA) on the proposed changes to the EU Shareholder Rights Directive.

John Davies, head of technical at ACCA, said: "The proposal for the revision of the Shareholders Rights Directive is a step forward towards increasing transparency as regards shareholder identification and shareholder oversight on directors’ remuneration and related party transactions. A strong call has been made to ensure shareholders gain timely access to information."

Participants in the discussion acknowledged that over recent years shareholders haven't always been properly engaged with companies. Consequently, they failed to oversee management sufficiently.

Stakeholders agreed that shareholder engagement is an important part of corporate governance and, by improving it, the European corporate governance framework will be strengthened.

It was suggested that in exchange for more rights, shareholders should be held to account in a way similar to the UK Stewardship Code.

What's more, engagement and stewardship should be seen as competitive issues.

Other measures proposed include a 'say on pay', which will enable shareholders to influence and approve remuneration policy. This will have to contribute to a business's long-term and sustainable development.

"This amounts to a practical commitment to the encouragement of a longer-term business focus, and is a welcome reform in that context," Mr Davies said.

In terms of corporate governance, it has been recommended that a more detailed explanation is demanded from companies that exit provisions of a relevant corporate governance code. Member state governments should also monitor compliance.

Mr Davies claims that this will not harm the freedom of companies to choose not to comply with a standard provision of a non-mandatory corporate governance code.

Conversely, it will allow shareholders to make their own judgements as to whether a company's action qualifies for support.

Furthermore, under the new proposals, it will be easier for small businesses to operate, especially when it comes to cross-border trading. This is thanks to legislation on single member companies.

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