Directives

on the exercise of certain rights of shareholders in listed companies

European Directive

The first significant European regulation on corporate governance for publicly listed companies was established in Directive 2007/36/EC of 11 July 2007, concerning “the exercise of certain rights of shareholders in listed companies.” The primary goal of this directive was to define minimum rights for shareholders of such companies. However, according to the European Commission, the 2007-2008 financial crisis revealed that shareholders often supported excessive short-term risk-taking by company managers. Furthermore, it was noted that institutional investors were insufficiently engaged in monitoring and overseeing the long-term strategy of companies. This focus on short-term returns resulted in suboptimal corporate governance and performance.

In response to these findings, the European Commission submitted a proposal in 2014 to revise the directive on shareholders' rights. This proposal led to Directive 2017/828 of 17 May 2017, which amended Directive 2007/36/EC to promote long-term shareholder engagement. This new directive, known as the "SRD II" directive, focuses on strengthening the interaction between companies and their shareholders and encouraging their accountability and engagement.

On 16 April 2020, the Belgian Parliament passed the law implementing the SRD II directive. Most provisions came into effect immediately, with some specific transitional provisions:

• Shareholder identification: These provisions took effect on 3 September 2020.
• Remuneration policy and report: These rules apply for the first time to remuneration reports for fiscal years starting after 30 June 2019. For companies with a fiscal year starting after 31 December 2019, these rules apply to general meetings held in spring 2021.

Scope

The directive applies to publicly listed companies within the European Union whose shares are traded on regulated markets in EU member states. The main changes introduced by the SRD II directive are as follows:

1. Dialogue between shareholders and the company
   The directive introduces the right for companies to identify their shareholders. This facilitates direct communication and interaction.
2. Transparency of institutional investors, asset managers, and proxy advisors
   The directive contains provisions requiring intermediaries to provide shareholders with the necessary information to effectively exercise their rights. Institutional investors and asset managers are required to develop and disclose an engagement policy that explains how shareholder involvement is integrated into their investment strategy. Proxy advisors must establish, publish, and annually report on compliance with a code of conduct.
3. Remuneration policy and report
   Companies are required to establish a remuneration policy for executives and submit it for approval by shareholders. This policy must explain how it contributes to the company’s long-term strategy and sustainability. Additionally, a remuneration report must be prepared, providing detailed information about the individual compensation of executives. The Belgian legislation adds the requirement to include in the report the ratio between the highest remuneration (of the highest-paid executive) and the lowest salary (of the lowest-paid full-time employee) within the company.
4. Transactions with related parties
   The directive sets strict rules for transactions between the company and related parties, such as shareholders, directors, or executives. These rules aim to minimize conflicts of interest and protect the company's value. The new directive strengthens existing Belgian legislation and expands its scope.