The original Directive aimed to improve corporate governance in EU companies traded on regulated markets by enabling shareholders to exercise their voting rights and rights to information across borders. However, there continues to be a perceived lack of shareholder engagement and shortcomings with transparency and therefore, a number of amendments have been proposed.

In particular, the proposals seek to:

  • Create a better link between the pay and performance of company directors;
  • Improve transparency and shareholder oversight of related party transactions;
  • Ensure the reliability and quality of proxy advisors’ advice; and
  • Facilitate the transmission of cross border voting and other information across the investment chain, through shareholder identification in particular.

Changes for asset managers

Asset managers should develop a policy on shareholder engagement covering how they:

  • Integrate shareholder engagement in their investment strategy
  • Monitor investee companies, including their environmental and social risks
  • Conduct dialogues with investee companies and their stakeholders
  • Exercise voting rights, and
  • Manage actual or potential conflicts of interests, such as the provision of financial services, or companies affiliated to them, to the investee company.

The policy should be made public and sent to the institutional investors’ clients annually. If an asset manager decides not to develop an engagement policy, or decies not to make their policy public, they will need to provide a clear and reasonable explanation.

Asset managers should publicly disclose:

  • How their investment strategy and its implementation is in accordance with the asset management arrangement
  • How the investment strategy and decisions contribute to medium to long-term performance of the assets of the institutional investor
  • The portfolio turnover
  • Whether they make investment decisions on the basis of judgements about medium to long-term performance of the investee company, and
  • Whether they use proxy advisors for the purpose of their engagement activities.

Asset managers should disclose the following Information direct to the institutional investor:

  • The portfolio composition and turnover costs and
  • Conflicts of interest which have arisen and how they have been dealt with.

This information allows institutional investors to better monitor asset managers, and provide incentives for a proper alignment of interests and for shareholder engagement.

Next steps

In March 2017 the European Parliament voted for the amendments but we are still waiting for the European Council to adopt the amendments. Once the amendments are published it is expected they will come into force two years later.

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