How are shareholders' rights strengthened?
The Shareholder Rights Directive II is a European legislation that defines the set of rules intended to strengthen the rights of shareholders of companies listed on regulated markets. In particular, the improvement of the communication process between Issuers and shareholders and the facilitation of the exercise of voting rights in company general meetings, including across borders.
The Shareholder Rights Directive II came into force in September 2020 and introduced formal and substantial changes in the methods of communication between Issuers and shareholders, such as, for instance, the "broad" dissemination of information to the customers and the possibility for Issuers to receive evidence of their shareholders on request ("shareholder identification"). The legislator has set new obligations regarding the governance of listed companies through a more intense and transparent involvement of shareholders. In Italy, families continue to be the major shareholders in most companies (26% of total market value)*.
The European regulator is currently in the process of amending the Shareholder Rights Directive II by updating its contents. During 2022, ESMA issued a questionnaire ("call for evidence") with the aim of receiving feedback from all parties involved in various capacities in the field of Corporate Events in a broad sense regarding the difficulties encountered in the application of the directive, hoping in return for proposals aimed at improving communication and facilitating shareholder participation in the life of companies.
In Italy, reflections on legislative interventions to support the competitiveness of the capital market are underway, including some aspects related to the active participation of shareholders, which have become commonplace during the pandemic period, such as recourse to the appointed representative.
We shall therefore focus on some shareholders’ rights that have become particularly widespread, such as:
The right to ask questions at the shareholders’ meeting, including through the intervention of the representative designated with the methods and terms indicated in the communication notice;
The request to convert their securities in order to benefit from multiple vote shares after the holding period provided in the Articles of association of the issuer has elapsed
During 2022, it was possible to observe an increase in the proportion of the share capital intervening in the context of General meetings and the number of general meetings attended by institutional investors and Italian citizens increased with time, as did the dissemination of multiple voting, which was effective in 46 companies at the end of 2021*.
In an international context, the European Banking Federation, consolidating the contribution of experts participating in the work on the subject, like other associations, responded to the call for evidence mentioned above, highlighting the most relevant points of attention.
The first refers to shareholder identification** the application of which has had considerable success in countries such as Germany and France, where the practice provides for an increase of bearer securities and Issuers have no alternative way of obtaining a ‘snapshot’ of their shareholding body on a given date. In Italy, Issuers have not manifested the same level of interest, mainly due to the fact that the first-level legislation (Civil Code) guarantees issuers a thorough knowledge of their shareholder base, together with the introduction of a threshold below which identification cannot be requested. Another aspect touched upon by the European Banking Federation and the regulator in recent discussions was that relating to costs and the ease of participation in company meetings.
The authorities are pushing towards the adoption of technologies and process solutions that allow all shareholders to access information and to cast their vote. Among these, there is that of facilitating the transition to electronic voting; in this regard, at European level, we are still in the study phase of possible operating methods that would enable this transition to be implemented, although an initial "case study" has already been recorded in France. In Italy, interest on the part of Italian issuers and regulators in facilitating participation in shareholders’ meetings has been confirmed, but at the moment, the instrument used remains conferring one’s expressions of will and vote to the designated representative.
* Source CONSOB. Context analysis: ownership structures, corporate bodies and shareholders’ meetings The highlights of the CONSOB Report.
** Option introduced by SHRDII whereby an Issuer may request details of its shareholders on a given date directly or through its agent.
Article published in Milano Finanza in July 2023.
Paola Deantoni, Public Affairs Officer, Societe Generale Securities Services