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New EU shareholders' rights rules enter into force

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New EU shareholders' rights rules enter into force

Deutsche Boerse

(BRUSSELS) - The new Shareholder Rights Directive, which entered into force on Monday, addresses corporate governance shortcomings that contributed to the financial crisis, says the EU Commission.

Under the revised Directive, institutional investors and asset managers are required to be transparent about their investment and engagement policy, and to disclose how they take social and environmental impact into account.

There are also new transparency requirements for proxy advisers who advise institutional investors on how to vote in companies' general meetings. With the new rules, the remuneration policy of companies will be more transparent, as will be the actual remuneration of directors.

Justice and Consumers Commissioner Vera Jourova said: “We have learned the lessons from the past. With the revised Shareholder Rights Directive we pave the way to responsible investment and corporate decisions that have a longer time horizon, instead of focusing on short-term financial gain.”

To ensure that the remuneration policy contributes to the long-term interests and sustainability of the company, the performance of directors must be assessed continuously, including with social and environmental considerations.

In addition, the Directive introduces a shareholder “say on pay”: shareholders will have the right to know how much the company's directors are paid and they will be able to influence this.

The new rules also bring approval and disclosure requirements for material related party transactions (typically between the company and its director or controlling shareholder.)

Finally, the new rules will ultimately make it easier for shareholders resident in another EU country than where the investee companies is based to participate in the general meetings of such companies and vote.

Company Law and Corporate Governance

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