Shareholder Engagement and Identification

Abstract

The European Commission launched, in April 2014, a new initiative to amend the shareholder rights directive as regards to the encouragement of long-term shareholder engagement. Under this heading, the Commission proposal intends to grant rights to shareholders concerning director remuneration (say on pay) and related party transactions. Moreover, it also imposes duties concerning an engagement policy on institutional investors and asset managers and gives rights to the management concerning shareholder identification. This paper deals with shareholder engagement and identification by referring to the initial Commission proposal. Both instruments are motivated by referring to the support shareholders have allegedly given to managers’ excessive risk taking before the financial crisis. The current level of “monitoring” of investee companies and engagement by institutional investors and asset managers is considered inadequate, leading to suboptimal governance of listed companies (see preamble 2). It is questionable whether the financial crisis revealed weak governance in listed companies and whether the rules proposed are likely to meet the objectives as stated in the directive.