Greece has recently incorporated Shareholder Rights Directive II regarding corporate governance through Law 4706/2020. SRD II amends EU Directive 2007/36/EC (SRD I) with the objective of improving the exercise of shareholder rights and ameliorate corporate governance for companies domiciled in EU and whose shares are traded on one or several of the EU’s regulated markets.

The Directive applies also to financial intermediaries such as investment firms, banks or a Central Securities Depository (CSD), including the ones domiciled outside the EU on the condition that they hold or manage equities from such companies on behalf of their clients.

Key changes of this new Directive include amongst others:

* “Know your shareholder” rule.

This new rule entitles companies to request information about the identification of their shareholders. This creates an obligation on intermediaries to provide the necessary information they hold on shareholder identity in an electronic form. Moreover, SRD II sets a threshold range for the shareholder identification disclosure estimated between 0.0-0.5 %, with each jurisdiction setting its own threshold. The companies affected by the Directive and operating in multiple markets should adapt to this variation.

In recent market infrastructure, companies are often unable to identify their shareholders due to the complexity of this chain which often consists of numerous intermediaries between the company and the shareholders. Under this rule, the transmission of cross-border information across the investment chain is facilitated.

* Rules simplifying the transmission of information.

Intermediaries should provide all the information that a company must transmit to its shareholders and information received from the shareholder regarding the exercising of their shareholder rights. Subsequently, the information flow between companies and their shareholders is strengthened.

* Transparency requirements for institutional investors such as insurance companies and asset management companies.

Under this Directive, they should disclose information regarding their investment strategy and engagement policy. The public disclosure of information could increase the level and quality of engagement of asset managers with their investee companies and enhance transparency and shareholder’s monitoring on related party transactions.

* Transparency obligations for proxy advisors.

Many institutional investors and asset managers use the services of proxy advisors who provide research and advice on voting procedures in general meetings of listed companies. While proxy advisors play an important role in corporate governance by contributing to reducing the costs of the analysis related to company information, they may also have an important influence on the voting behavior of investors. Therefore, SRD II requires proxy advisors to adhere to a code of conduct and set publicly available information concerning the preparation of their research, advisory consultations and voting recommendations.

* Enhancement of the right of shareholders in decisions related to the remuneration policy for the Management Board and Supervisory Board.

In order to ensure that shareholders have oversight of the remuneration policy, they are granted the right to hold a binding or advisory vote on the remuneration policy. In this context, SRD II  defines certain minimum standards for Member States so that the compliance of each company when establishing the remuneration policy is guaranteed.

Overall, the Directive has a global impact on both shareholders and intermediaries and aims primarily to facilitate the exercise of shareholder rights and shareholder engagement with the company.

However, the implementation of SRD II is accompanied by certain challenges, which can be outlined as follows:

* As noted above, SRD II extends to financial intermediaries who are established in countries outside the EU. Therefore, any bank or firm providing such services will have to consider the methods to comply with the Directives’ requirements.

* The process of corresponding to the shareholder information request can be considered challenging for most participants, as it requires a much more formalized and fast procedure than the already existing in most markets.

* The challenge of diverse interpretations. SRD II needs to be incorporated into the national law of each EU Member State. However, as each jurisdiction may interpret the requirements set by SRD II differently, certain variations may occur.

The editorial team