Abstract
On 10 June 2019 the transposition and implementation deadline for the shareholder engagement rules imposed upon institutional investors and asset managers by the revised Shareholder Rights Directive (SRD II) expired. This article offers an original account of the rationale, the dynamics and the evolution of this EU-driven policy, which aims to promote long-term institutional shareholder engagement within (or in the absence of) nationally embedded frameworks. We place the SRD II shareholder engagement rules within what we see as a multi-layered regulatory landscape consisting in some Member States of soft-law stewardship codes or similar principles and guidelines, and we find—perhaps surprisingly—that the SRD II stewardship-related provisions were transposed in a literal and minimalistic fashion without any customization to divergent national specifications and despite the fact that the SRD II is only a minimum harmonization directive. We search for explanations for this transposition pattern by pointing to three key issues: the policy and institutional misfit between the harmonized rules and national regimes, the lack of a strong market demand for shareholder stewardship, and the more apt soft, flexible and mostly bottom-up norms (contained in codes or similar principles and guidelines)—rather than (semi-)hard top-down rules—in inculcating good shareholder stewardship practices. Against this background of minimalist intervention (both at the EU and national levels), we find that pre-SRD II soft stewardship initiatives have had two key positive effects. First, they increased market actors’ familiarity and preparedness with the SRD II transposed rules, thereby increasing the likelihood of effective compliance with good shareholder stewardship standards whilst maintaining national idiosyncrasies. Second, soft-law stewardship codes or similar principles and guidelines, despite their own weaknesses, are vital mechanisms of innovative norm-generation and can expand or adjust the SRD II stewardship-related rules to provide tailored shareholder stewardship frameworks and serve as a signalling function for key market actors. From this it follows that the uniform, but minimalistic, transposition of the SRD II stewardship-related rules across the EU, although welcome in shaping the minimum standards, needs to be supported by tailored, soft-law stewardship codes or similar principles and guidelines. Such a symbiosis of the harmonized SRD II shareholder engagement rules and supporting soft-law stewardship developments will allow the tailoring of shareholder stewardship norms to local conditions and the provision of guidance and meaning to the SRD II rules, while a minimum harmonization of shareholder stewardship is already secured.
Highlights
II shareholder engagement rules and supporting soft-law stewardship developments will allow the tailoring of shareholder stewardship norms to local conditions and the provision of guidance and meaning to the Shareholder Rights Directive (SRD II) rules, while a minimum harmonization of shareholder stewardship is already secured
There is a related argument about path dependence and the lock-in effects or ‘stickiness’ of pre-existing norms which create formidable pressures for continuity.149. If one applies this argument of pre-existing national institutions, norms and rules that persist change in the context of SRD II, it becomes clear that Member States should customize rather than copy harmonized rules that relate to issues closely attached to their respective legal traditions or that have been traditionally subject to hard law at the national level to allow for the continuity of the differentiating national rules
Our analysis shows that the operability of the literal and minimalistic SRD II shareholder stewardship rules crucially depends on other soft stewardship norms tailored to the specific national contexts
Summary
‘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’, said Věra Jourová, Commissioner for Justice, Consumers and Gender Equality, in June 2019,1 three days before the expiry of the transposition deadline of the revised Shareholder Rights Directive (SRD II). In this article we deconstruct this statement in light of the complexities of transforming the EU aspirations relating to the ‘long-term’ and ‘responsible’ corporate governance role of institutional shareholders (asset owners and asset managers) to concrete and workable national shareholder engagement and broader shareholder stewardship practices. In some Member States we find soft-law stewardship ‘codes’ (in the form of fully-fledged codes or preliminary initiatives and guidelines) that are more closely aligned with national specific (institutional or political) situations, traditions and existing laws Such softlaw stewardship codes along with other stewardship-related principles and guidelines found in corporate governance codes or investor associations’ codes of conduct can, in our opinion, offer a distinctive normative framework that will complement, rather than substitute, the SRD II stewardship-related rules and nudge market actors towards meaningful and tailored shareholder stewardship practices. 16 Scott (2001a); Hancher and Moran (1989)
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