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Barnier proposes shake-up of corporate governance

Shareholders will get a say on directors’ pay under a new proposal, but they will also face stricter transparency rules.

The European Commission today proposed new corporate governance rules that would force greater transparency onto corporate shareholders and their advisors, as well as the pay packages of company directors.

“The last years have shown time and time again how short-termism damages European companies and the economy,” said Michel Barnier, the European commissioner for internal market and services. “Today’s proposals will encourage shareholders to engage more with the companies they invest in, and to take a longer-term perspective of their investment.”

The Commission has proposed giving shareholders in the 10,000 or so listed companies across Europe the ability to reject directors’ pay deals, in line with rules introduced recently in some EU states including Belgium and Sweden. Companies would be required to present their pay policies in a clear and comparable fashion, including a maximum pay cap.

At the same time, the Commission wants institutional investors, who hold around 23% of all shares in Europe, asset managers, who often invest on their behalf, and proxy agents, who advise shareholders how to vote in shareholder meetings, to be more transparent in their dealings.

Institutional investors would have to provide details regarding attendance at votes and meetings with management. It is hoped that more transparency will encourage them to take a more active role.

The Commission’s proposal would also impose requirements for greater transparency about the hitherto murky world of proxy agents, who advise institutional shareholders on how to vote at shareholder meetings.

The market is currently dominated by two leading players, ISS and Glass Lewis, and a number of stakeholders have raised concerns with the Commission about potential conflicts of interest, given the range of companies on which they advise. The Commission is keen that proxy agents, which have recently developed their own code of conduct, explain better how they reach their conclusions.

Barnier’s proposal would also give companies a right to find out who their shareholders are. At present their ability to know can be blocked by intermediaries, which make investments on behalf of the companies.