The Shareholder Rights Directive II (SRD II) aims to encourage long-term shareholder engagement, increase transparency and improve corporate governance. But with the implementation of the directive in Denmark and the upcoming implementation Norway, what does this mean for issuers in practice and what are the benefits?
Impressions from Euronext Corporate Services webinar with keynote from Alexander Wathne, Euronext VPS and Flemming Merring, VP Securities on 4th November 2021
In Denmark the first SRD came into force in 2009, but SRD II was implemented in May 2017 after some delays. Primarily implemented by changes in the Companies act and the Capital market act. Phase one entered into force in June 2019 and phase two in September 2020. The updated Shareholder Rights Directive [II] is important as more than 50% of the market cap/custodian chain is held by foreign investors.
The directive includes many areas, but the three most important ones are the following:
- Identification of shareholders
Not something new due to the rules about flagging if you hold more than 5% of a stock. What is new is the company right to know owners of smaller holdings.
- Transmission of information
It is a democracy process in the capital markets.
- Facilitation of the exercise of shareholder rights
Especially for vote casting at AGMs cross-border which is almost impossible at present, very costly and thus difficult to exercise active ownership in practice.
The overall aim is to improve transparency and stabilize ownership. The problem is the nominee account holders and the lack of transparency between the various levels if the issuer wants to get identification of its shareholders. The directive has a goal of investor disclosure without specific motivation – but there will be a cost to the custodian to set up a useful structure. The intermediaries have a legal obligation to provide shareholder information in the custody chain. The information includes number and classes of shares held and date of shareholding.
The goal is a fully automated process from investor and up to the issuer by facilitating the exercise of the shareholder rights in Denmark: Issuer/agent / Intermediary / Voting party important information in planning of the AGM.
In Norway they follow close to the same rules as in Denmark, but SRD II was not implemented until the summer of 2021 and has not come into effect yet and the details of when it will happen is still unclear. Harmonised rules across Europe should make cross-border voting easier. The technical standards and the legal obligations should enable the companies to easier gain access to their owner base.
Making sense of the raw share register data can be difficult to decipher as there is no contact information to the portfolio manager for instance. To deliver a coherent and IR-ready output you must sign up with a specialized service provider (Eg. Euronext Corporate Services!).
Shareholder knowledge is an important part of being a listed company and a multi-source approach as well as constant surveillance beyond the share register is necessary. This enables benchmarking with peers and disclose over-/underweight in the shareholder structure (and thus voting policies). Improved shareholders’ engagement can also improve management use of time with an efficient IR roadmap, better share liquidity and cost-effective decision-making in the IR strategy.