The European Reform of Listed Companies: updates for 2017

A Directive has been proposed which would reform the law governing European companies by amending Directive 2007/36/EC with regard to encouraging the long-term involvement of shareholders and Directive 2013/34/EU with regard to certain elements of the declaration on corporate governance. It is expected to be approved in 2017.

At present, a significant part of the capital of listed companies is in the hands of institutional investors. This implies an increase in work for proxy advisors in relation to the exercise of voting rights by investors. This in turn gives rise to the need to encourage shareholder participation in listed companies but also greater transparency, particularly as far as institutional investors are concerned, in order to improve the supervision and control of the management body in these types of companies.

The speakers highlighted the importance of the proposed Directive for encouraging the involvement of shareholders and institutional investors in companies, using measures that increase the publicity of their actions. They also drew attention to the relevance of the rules contained in the proposed Directive on the duties of transparency of proxy advisors in relation to the exercise of voting rights by investors and analysed the position of proprietary directors – which are unique to the Spanish legal system – and their current role in listed companies.

García Maceiras analysed the proposed directive in view of the changes that have occurred in modern society since the financial crisis which compel the commercial sector to improve the relationship between corporations and their shareholding base as a means of restoring a “social pact” that has been seriously threatened. The improvement of the relationship between companies and their shareholders, together with a series of measures which generally ensure higher quality decision-making by the management bodies – such as the business judgement rule or the requirements of suitability currently in force in the financial sector- will, according to García Maceiras, lead the way to restoring this “social pact”.

Francisco León considered the main issues that the proposed Directive regulates, namely, the identification of shareholders, the involvement of institutional investors, the increasingly significant work of proxy advisers, the remuneration of directors, related operations and the erosion of tax bases (BEPs). The potential adoption of the proposed Directive, and its mandatory transposition, will necessitate a reform of Spanish company law. For some points, this reform will have to accept the regulation present in the proposal. However, for other points, the reform will simply involve an adaptation of our legislation to the text of the proposal. Some of the points that the proposed directive regulates have recently been incorporated into Spanish law in the latest reforms of its company law.

Finally, both speakers discussed the significant discrepancies between the Commission’s proposed Directive, Council documents and the European Parliament’s amendments with regard to many of the aspects addressed in the proposal, which could make final approval of the proposed Directive difficult.