The European Parliament has voted in favor of new rules that will strengthen shareholder rights and facilitate cross-border voting under the Shareholders Rights Directive as the new Trump Presidential administration moves in the complete opposite direction related to enhanced corporate governance.
Under the new changes in the EU Shareholders Rights Directive -- it will make it easier for shareholders residing in another European Union country to the location of the company in which it invests to participate in the general meetings of those companies and to vote on shareholder issues.
The new rules require institutional investors and money management firms to be transparent about how they invest and engage with companies. The directive encourages these investors to adopt a more long-term focus in their investment strategies, and to consider social and environmental issues.
The rules will be based on a “comply-or-explain” approach — if an investor does not comply with the rules they need to provide an explanation as to why.
The new rules aim to contribute to the long-term sustainability of EU companies, to enhance the efficiency of the relationship of intermediaries and to encourage long-term shareholder engagement.
The main purpose of this long-term sustainability definition is to explain how the public company is serving the public interest in the long term with more effective stakeholder engagement -- to facilitate its “public license to operate” in the best interests of both investors and the people in the various communities it serves.
Proxy advisers will also be required to disclose certain key information about the preparation of their recommendation and advice, and to report about the code of conduct they apply.
The rules will also encourage more transparency and accountability from companies about directors' pay, and shareholders will have the right to know how much a company's directors are paid. They will also be able to influence this, which the Q&A said “will guarantee a stronger link between pay and performance.”
The new Directive applies to the more than 8,000 companies listed on the EU Regulated Markets with market capitalization representing around €8 trillion. The Directive must still be formally approved by the EU Council of Ministers (which is anticipated shortly) and then Member states will have 24 months from the date of entry to bring the new rules into force.The next question is if US public companies will follow the EU lead to stay competitive in a thriving global capital markets despite the New Administration's move away from greater transparency and accountability especially related to "say on pay", sustainability reporting related to human and natural resource capital disclosures?If public companies disclose additional non-financial information to investors -- management accountants ARE and WILL continue to play a major role if preparing, verifying and analyzing this information driving capital markets investment especially in the area of climate finance.
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