Published legislation and draft legislation - Spain

Transposition of the European Directive on long-term shareholder engagement

Bill transposing EU Directive 2017/828

In  Progreso 11 we covered the publication of the European Parliament and of the Council’s Directive 2017/828, 17 May 2017, amending Directive 2007/EC on the encouragement of long-term shareholder engagement, to reinforce active and transparent engagement with shareholders in companies that have their registered office in a Member State and are listed on a regulated market located or operated in a Member State, and to promote their long-term commitment to the company and its strategy.

The Ministry for the Economy & Business has put out for public consultation the bill transposing this EU Directive into Spanish law, endeavoring to solve the following problems that have been detected:

Institutional investors and asset managers

One of the issues highlighted in the Directive is insufficient involvement of institutional investors and asset managers in the listed companies in which they invest.

To that end, it proposes aligning shareholders' and managers' interests to prevent short-termism, by requiring companies to approve a long-term engagement policy for shareholders that defines the investment strategy and is made available to the public by these asset managers.

Directors' remuneration and performance

The Directive states that there is insufficient correlation between the remuneration and performance of directors of listed companies and the companies do not disclose any clear, comprehensible or comparable information about their remuneration. It also argues that shareholders lack appropriate tools to express their opinion of the remuneration of members of the administrative body.

In view of this, the regulation requires listed companies to prepare a directors' remuneration policy, which must be submitted for the Annual General Meeting's approval. It also requires a remuneration report describing how this remuneration policy has been applied, which should also be submitted to the institution's shareholders.

Related-party transactions

The regulation points to a lack of supervision and monitoring by shareholders of related-party transactions, and shareholders’ difficulties in accessing enough information in a timely manner on these types of transactions.

As a solution, it proposes that timely information must be published about a forthcoming transaction between a listed company and a related party, and that this transaction should be submitted to approval by the shareholders (or, where applicable, the board of directors or equivalent).

Proxy advisors

The Directive refers to the inadequate transparency standards applied to proxy advisors used by institutional investors and asset managers to exercise the voting rights associated with their investments, with the consequence that these advisors take on a very important role in the decision-making of listed companies.

Thus it proposes that proxy advisors must publish the methodologies they use to draw up their recommendations and should put policies in place to manage and minimize conflicts of interest.

Exercising shareholder rights

Finally, the Directive acknowledges that the exercise of rights attached to shares is difficult and expensive, particularly when there is a chain of intermediaries in the holding of a share, since the information about exercising shareholder rights intrinsic to the holding of shares is not always properly transmitted along the chain of different entities.

The solution proposed by the regulation is to set up obligations incumbent on the financial intermediaries involved in the custody of shares. These could include the obligation to transmit both to the listed institution and to its shareholders, such information as is necessary to exercise the right to vote, in the time frames and formats set out in the European Commission's regulation.

Consultation period

The consultation period on this Bill ended on 12 July. We will keep Progreso readers informed about the publication of the final version.