Even as we speculate about the likelihood and potential impact of massive deregulation here in the US, the EU is going in the opposite direction. Earlier this month, the European Parliament passed a Shareholder Rights Directive that contains some “interesting” provisions, including the following:
- Say-on-Pay: Issuers would be required to hold prospective and retrospective say-on-pay votes (i.e., shareholders would have to approve pay plans in advance as well as how those plans worked out). These votes would be binding unless a member state opts out of this provision.
- Director Pay: While director pay has generated more scrutiny here in the US, the EU proposes to do something about it – specifically, it appears that director pay would also be subject to shareholder approval, though it’s not clear whether the mechanics would be the same as those for executive compensation. Note that shareholder proposals seeking a say-on-pay vote on director compensation have fared poorly here in the past.
- Related Party Transactions: “Material” related party transactions would be subject to shareholder approval.
While these items seem pretty scary, the Directive includes some features that companies are likely to approve:
- Shareholder Identification: Companies will be able to more easily identify shareholders to facilitate outreach. This is something that the corporate community has long hoped to achieve, through the “proxy plumbing” route or otherwise.
- Investor Stewardship: Investors would be required to disclose how they take long-term beneficiaries into account.
- Proxy Advisors: Proxy advisory firms must disclose how they prepare policies and voting recommendations and must sign a code of conduct to be prepared separately by each member state.
If the past is prologue, what happens in the EU eventually makes its way here, in one form or another. Is anyone interested in joining a shore patrol?