Official Journal of the European Union

C 318/42

Opinion of the European Economic and Social Committee on the Proposal for a directive of the European Parliament and of the Council on the exercise of voting rights by shareholders of companies having their registered office in a Member State and whose shares are admitted to trading on a regulated market and amending Directive 2004/109/EC

COM(2005) 685 final — 2005/0265 (COD)

(2006/C 318/06)

On 31 January 2006 the Council decided to consult the European Economic and Social Committee, under Article 95 of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 20 July 2006. The rapporteur was Mr Cassidy.

At its 429th plenary session, held on 13 and 14 September 2006 (meeting of 13 September), the European Economic and Social Committee adopted the following opinion by 83 votes to 9 with 18 abstentions.

1.   EESC conclusions and recommendations


The EESC welcomes the Commission proposal as barriers to cross-border voting provide distortions of the single market.


Share blocking, i.e. the obligation to deposit or block shares for a few days before a general meeting to be able to vote still exists in several EU countries. Indeed, the practice is mandatory in some. It is an expensive practice, which prevents shareholders from negotiating shares in advance of the general meeting. It is also considered by the majority of institutional investors as one of the greatest obstacles to voting. Article 7 of the proposed Directive eliminates any proposal to ‘block’ shares by requiring them to be deposited ahead of the general meeting. The EESC particularly welcomes this, though aware that the number of countries where this is still permissible is limited.


The EESC believes that the Directive should acknowledge the drive for better regulation and draws attention in particular to paragraph 34 of the Interinstitutional Agreement on better lawmaking of December 2003, paragraph 34 of which encourages Member States to ‘draw up, for themselves and in the interests of the Community, their own tables, illustrating as far as possible, the correlation between this Directive and their transposition measures, and to make them public’.


The EESC would like to see greater use of electronic voting to improve transparency and to encourage shareholder participation but believes this should be left to the companies concerned but wishes Member States to avoid imposing obstacles to wider use of electronic participation in general meetings.


Following from the preceding paragraph, the EESC expects a wider use of secure Internet voting perhaps including the use of SMS. This should be encouraged but not imposed by an EC Directive.


The EESC particularly welcomes the proposals for Proxy Voting set out in Article 10. It especially welcomes the removal of constraints on Proxy Voting whereby, in some Member State, ‘Proxies’ are restricted to relatives of the shareholders.


The EESC supports the idea that Member States may set a single date, with reference to a specified number of days before the general meeting, and may provide the company shall not be obliged to respond to questions which are submitted after that date.


The EESC would like to see a strengthening of Article 5 concerning the supply of information to shareholders prior to a general meeting.

2.   The Commission's proposal

It deals with obstacles to cross-border voting for shareholders.


Due to the recent spate of scandals connected with poor Cooperate Governance in the EU and in the USA, there is a need to encourage shareholders to play a more active part by voting at general meetings. The proposal under consideration is aimed at protecting the rights not only of shareholders in the EU but elsewhere in the world too.


This proposal aims to improve Corporate Governance in EU listed companies by enhancing the rights shareholders are able to exercise in relation to company meetings. In particular, it seeks to achieve this by ensuring that shareholders owning shares in companies registered and listed in another Member State may vote without difficulty at company meetings.


The draft Directive addresses the following four significant issues:


the abolition of ‘share-blocking’;


sufficient advance notice for meetings (including a requirement that all general meetings of shareholders be called with at least 30 days' notice);


removal of legal obstacles to electronic participation;


the ability to vote without attending the meeting.


This proposal is one of the short-term measures put forward in the communication from the Commission to the Council and European Parliament of 21 May 2003 (1) entitled ‘Modernising Company Law and Enhancing Corporate Governance in the European Union — a Plan to Move forward’.


The Commission notes that the process of voting at company general meetings differs widely across Member States and is often a complex procedure. It is further complicated when shares are held across EU borders.


The Commission believes that existing legislation at EU level does not address sufficiently the cross-border voting problem. At present, under Article 17 of Directive (2004/109/EC) the ‘Transparency Directive’, companies are required to make a limited amount of information available in relation to company meetings. But the Transparency Directive does not deal with the shareholder voting process.


Voting can be a complex process. Shares are often held on behalf of investors by intermediaries. Where this is the case, voting can involve a chain of events which encompasses companies, registrars, custodian banks, investment managers, central securities' depositories and proxy voting agencies.

3.   Options


There is no guarantee that the market will react quickly enough to improve shareholders' rights nor that appropriate legislative change will take place in all Member States to deal with the problem of the complexity of the voting process.


A Commission Recommendation has no legal force but would offer flexibility for Member States to implement it into the national systems on the basis of Commission guidelines.

A Recommendation would not guarantee the introduction of minimum standards in key areas which are the origin of cross-border voting problems and increased costs, such as share-blocking where what deters investors is the possibility that such a requirement be present at national level.


A Regulation would introduce a uniform treatment, irrespective of Member States laws. It could also guarantee the introduction of a tight common framework for cross-border related issues. It would have the additional advantage of avoiding Member States ‘gold plating’ a directive.

The Commission believes that the costs of a regulation could be significant since it would not be possible to offer flexibility across the differences that characterise legal traditions in EU Member States.


A Directive would allow for differences in Member States' practices, preventing imbalance between different classes of shares and shareholders and favouring basic, minimum standards.

4.   Costs and benefits

4.1   Benefits


The main beneficiaries from the proposal, in the short term, will be institutional investors that currently own cross-border shares in their portfolios. The existence of costs, associated with obstacles to cross-border voting means that investors are unable to become as actively engaged in the governance of companies as they may wish.


Over the longer term, the proposal may encourage smaller investors, who are currently deterred from holding cross-border shares by the high costs associated with voting, to increase their holdings in such shares. This will enable them to further diversify their portfolios so reducing risk. Overall, in the longer term, the proposal should give rise to greater liquidity in European capital markets.


Currently, a number of obstacles to cross-border voting exist. Share blocking remains a problem in some countries and is perceived by many investors to represent a serious obstacle to voting. In this respect it represents an obstacle to the efficient operation of cross-border capital markets. In addition, there is confusion among investors as the precise nature of blocking arrangements across EU States. This too represents a serious cost for investors, which would be reduced by the draft directive.


There is an unfair distinction between domestic and cross-border shareholders regarding the information made available to cross-border shareholders relating to a general meeting. The Commission draft ensures that adequate and timely information is available across all markets and should, therefore, help to alleviate this problem.


The jurisprudence of the European Court of Justice (ECJ) emphasizes the need for Member States to avoid abuse by one class of shareholders prejudicial to other classes.


Proxy voting and re-registration requirements are often costly and there is some evidence based on the Commission Impact Assessment to suggest that the level of these costs effectively discourages small funds from voting. The Commission's proposal should simplify the process for the appointment of proxies and clarify who can be appointed as proxies and enhance the rights of proxies in certain countries.


In cases where the Chairman of the meeting holds shareholders' Proxies, he/she should be obliged to vote them strictly according to those shareholders' wishes.

4.2   Costs


A uniform notice period, as proposed, would introduce an element of inflexibility for those Member States, which require only a 14 days notice period for the calling of an Extraordinary General Meeting (EGM).


The requirement to produce written answers to shareholders' written questions is essential.


Articles 5 and 7 of the draft Directive laid on 30 days between the record date and the date of the meeting in order to assist shareholders in being able to vote their shares.

5.   Specific comments


The EESC welcomes the Commission proposal as barriers to cross-border voting provide distortions of the single market.


As the financial sector is an important influence on the economy and on employment growth, anything which inhibits shareholder participation should be discouraged. The Commission proposal sets out to do that.


Currently cross-border voting is a priori more expensive for non resident shareholders than those resident in the country in which the company concerned has its shares quoted, it is an example of market distortion.


The Committee believes that there are too many constraints at present, which make proxy voting in some Member States unduly cumbersome.


Share blocking, i.e. the obligation to deposit or block shares for a few days before a general meeting to be able to vote still exists in several EU countries. Indeed, the practice is mandatory in some. It is an expensive practice, which prevents shareholders from negotiating shares up to weeks in advance of the general meeting. It is also considered by the majority of institutional investors as one of the greatest obstacles to voting.


The EESC shares the Commission's view that the late availability of information relevant to a general meeting or its incompleteness or resolutions in summary form or short noticed periods are among the major obstacles which non-residents face when seeking to exercise their rights as shareholders. All relevant documents including auditor's reports, replies to shareholders' questions and notices convening general meetings, and the motions to be submitted to such meetings should be made available electronically as well as physically.


Article 8 concerns participation in the general meeting by electronic means. As technology moves so rapidly, the Commission is proposing that Member States ‘shall not prohibit the participation of shareholders in the general meeting by electronic means.’


The Commission's text does not specifically deal with the problem of ‘barer’ shares, communication with whom currently is largely through newspaper advertisements. The EESC believes that electronic communication is more modern, quicker and certainly cheaper.


Article 10 clarifies the arrangements for Proxy voting and abolishes the arrangements whereby certain companies impose restrictions as to the person who can be granted a Proxy.


The option of doing nothing, in other words to leave the present situation as it is does not recommend itself to the EESC. The obstacles make cross-border voting prohibitively expensive for small shareholders and very costly for institutional investors.

Brussels, 13 September 2006.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

(1)  COM(2003) 284 final ‘Modernising Company Law and Enhancing Corporate Governance in the European Union — A Plan to Move Forward’.