EU Still Not Taking Shareholder Rights Seriously

by Scott Hirst for The Harvard Law School Forum, November 14th, 2010.

Proponents of the global shareholder activism movement have recently praised the EU for generously empowering shareholders through the so-called Shareholder Rights Directive (“SRD”) (Directive 2007/36/EC). A year after the deadline for the transposition of the SRD into national corporate laws an article in the current issue of European Company Law entitled Is the EU Taking Shareholder Rights Seriously? An Essay on the Impotence of Shareholdership in Corporate Europe checks what progress has really been made regarding the issue of shareholder involvement in European corporate governance.

The article attempts to show that the deficit in the European corporate governance model with regard to the status of the shareholders persists even in the post-SRD era and that there is still a long distance to be covered in order to truly empower shareholders in the EU. The deficiencies of the past in shareholder governance have not been cured by the SRD, while the latter does not interact satisfactorily with the existing EU and national legal framework in order to unfetter shareholders from the mechanisms that restricted their active engagement.  European corporate law is still captive of an ideology that wants other corporate constituencies to be protagonists in corporate affairs.

First of all, the sterilization of the shareholder voting right in Europe is examined. The SRD is accused of introducing a dysfunctional “pull” system of dissemination of pre-meeting information that does not tackle the well-documented problem of shareholder passivity. In turn, the problem of tight record and “cut-off” dates is examined. It is concluded that sufficient time is not allowed for the voting entitlements and the voting instructions to travel up the chain of financial intermediaries that stand between the end investor and the corporation and as a result many shareholders are effectively disenfranchised. (continue reading… )

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