# EUR-Lex - 52014PC0213 - EN

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# 52014PC0213

**Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EU as regards certain elements of the corporate governance statement /* COM/2014/0213 final - 2014/0121 (COD) */**

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EXPLANATORY
MEMORANDUM

1.           CONTEXT
OF THE PROPOSAL

The importance of
creating a modern and efficient corporate governance framework for European
undertakings, investors and employees that must be adapted to the needs of
today’s society and to the changing economic environment was acknowledged by
the Commission’s ‘Europe 2020’ Communication[1] that calls for improvement of the
business environment in Europe.

The past years have
highlighted certain corporate governance shortcomings in European listed
companies. These shortcomings relate to different actors: companies’ and their
boards, shareholders (institutional investors and asset managers) and proxy
advisors. Identified shortcomings related mainly to two problems: insufficient
engagement of shareholders and lack of adequate transparency.

Stakeholders were
consulted on two Green Papers ("Corporate governance in financial
institution"[2]
and "The EU corporate governance framework"[3]) In
relation to what they considered to be the most important issues to be tackled
at European level.

Based on these
consultations and further analysis, the Commission's Action Plan: European
company law and corporate governance - a modern legal framework for more
engaged shareholders and sustainable companies[4] provides the Commission’s roadmap in
the area, based the two objectives of enhancing transparency and engaging
shareholders. This Action Plan announces a number of initiatives, amongst
other, a potential revision of the Shareholder Rights Directive.

Against this
background, the overarching objective of the current proposal to revise the
Shareholder Rights Directive is to contribute to the long-term sustainability
of EU companies, to create an attractive environment for shareholders and to
enhance cross-border voting by improving the efficiency of the equity
investment chain in order to contribute to growth, jobs creation and EU
competitiveness. It also delivers on the commitment of the renewed strategy on
the long-term financing of the European economy[5]: it contributes to a more long-term
perspective of shareholders which ensures better operating conditions for
listed companies.

This requires the
realisation of the following more specific objectives: 1) Increase the level
and quality of engagement of asset owners and asset managers with their
investee companies; 2) Create a better link between pay and performance of
company directors; 3) Enhance transparency and shareholder oversight on related
party transactions; 4) Ensure reliability and quality of advice of proxy
advisors; 5) Facilitate transmission of cross-border information (including
voting) across the investment chain in particular through shareholder
identification.

This proposal is also
consistent with the existing regulatory framework. In particular, the new
Capital Requirements Directive and Regulation (CRD IV package)[6] have, in
order to tackle excessive risk taking, further strengthened the framework with
regard to the requirements for the relationship between the variable (or bonus)
component of remuneration and the fixed component (or salary). These rules
apply to credit  institutions and investment firms, both listed and non-listed.
The rules in this proposal would however only be applicable to listed companies
and aim at increasing transparency and ensuring that shareholders have a vote
on the remuneration policy and report. Existing rules regulating institutional
investors and asset managers, for instance in the UCITS Directive[7], AIFM[8] and MIFID[9] are
consistent with this Directive.

At the date of adoption
of this proposal the Commission also adopted a recommendation on the quality of
corporate governance reporting (‘comply or explain’). The EU corporate
governance framework is above all based on the comply or explain approach which
allows Member States and companies to create a framework that is in line with
their culture, traditions and needs. To support the good functioning of that
approach the Commission adopted the recommendation. However, a number of
elements of corporate governance should, in view of the cross-border relevance
and importance be dealt with at European level in a more binding form to ensure
a harmonised approach across the EU (e.g. shareholder identification, the
transparency and engagement of institutional investors and board remuneration).

The proposed EU action
provides significant added value. Non-national shareholders hold some 44% of
the shares in EU listed companies. Most of these investors are institutional
investors and asset managers. Only EU action can ensure that institutional
investors and asset managers, but also intermediaries and proxy advisors from
other Member States are subject to appropriate transparency and engagement
rules. Moreover, a significant number of listed companies have activities in
several EU Member States. Appropriate standards ensuring a well-functioning
corporate governance of these companies with a view to their long-term
sustainability are thus in the interest not only of Member States where these
companies are based but also of those Member States where they operate. Only
common EU action can ensure such common standards.

2.           RESULTS
OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS

Consultation of
stakeholders and interested parties

The Commission held a
number of public consultations that covered the different topics in this
proposal. First, the 2010 Green Paper on corporate governance in financial
institutions and remuneration policies and the 2011 Green Paper on the EU
corporate governance framework. Moreover, two consultation were held on legislation
on legal certainty of securities holding and dispositions which comprised
questions on shareholders identification and effective cross-border exchange of
information, including voting, across the investment chain. Moreover, the
Commission services have maintained regular and wide dialogues with
stakeholders throughout the procedure leading to this proposal for amendment.

In its reflection on
the functioning of the European corporate governance framework the Commission
has benefited from the advice of the European Corporate Governance Forum.[10]
Additionally, the Commission sent a questionnaire to the Company Law Expert
Group which is composed of member State representatives.[11]

Finally, some corporate
governance problems have been discussed in the Green Paper on the long-term
financing of the European economy[12]
which has initiated a broad debate about how to foster the supply of long-term
financing and how to improve and diversify the system of financial
intermediation for long-term investment in Europe.

Stakeholders and
respondents overall expressed themselves in favour of increasing transparency
as regards board remuneration and of granting shareholders a say on pay. They
also supported measures regarding monitoring of asset managers by asset owners,
more transparency from proxy advisors and reinforcing current rules on related
party transactions. They favoured disclosure of voting policies and records by
institutional investors. Additionally, a strong call had been made to increase
the efficiency of the investment in transmitting information and facilitating
cross-border voting by effective intermediary communication among themselves
and with shareholders. Finally, clear support was shown for shareholder
identification.

Impact assessment

The impact assessment
undertaken by the Commission services identified five main issues: 1)
Insufficient engagement of institutional investors and asset managers; 2)
Insufficient link between pay and performance of directors; 3) Lack of
shareholder oversight on related party transactions and 4) Inadequate
transparency of proxy advisors 5) Difficult and costly exercise of rights
flowing from securities for investors.

Insufficient
engagement of institutional investors and asset managers

The financial crisis
has revealed that shareholders in many cases supported managers' excessive
short-term risk taking. Moreover, there is clear evidence that the current
level of “monitoring” of investee companies and engagement by institutional
investors and asset managers is sub-optimal. Institutional investors and their
asset managers do not sufficiently focus on the real (long-term) performance of
companies, but often on share-price movements and the structure of capital
market indexes, which leads to suboptimal return for the end beneficiaries of
institutional investors and puts short-term pressure on companies.

Short-termism appears
to be rooted in a misalignment of interests between asset owners and asset
managers. Even though large asset owners tend to have long-term interests as
their liabilities are long-term, for the selection and evaluation of asset
managers they often rely on benchmarks, such as market indexes. Moreover, the
performance of the asset manager is often evaluated on a quarterly basis. As a
result many asset managers’ main concern has become their short term
performance relative to a benchmark or to other asset managers. Short-term
incentives turn focus and resources away from making investments based on the
fundamentals (strategy, performance and governance) and longer term perspectives,
from evaluating the real value and longer-term value creative capacity of
companies and increasing the value of the equity investments through
shareholder engagement.

Insufficient link
between pay and performance of directors

Directors’ remuneration plays a key role in aligning the interests of directors and shareholders
and ensuring that the directors act in the best interest of the company. Shareholder control prevents directors from
applying remuneration strategies
which reward them personally, but that
may not contribute to
the long-term performance of the company. Several
shortcomings have been detected in the current framework. First, the
information disclosed by companies is not comprehensive, clear nor comparable.
Secondly, shareholders often do not have sufficient tools to express their
opinion on directors’ remuneration. As a result, there is currently an
insufficient link between pay and performance of directors of listed companies.

Lack of
shareholder oversight on related party transactions

Related party
transactions (RPTs), i.e. transactions between a company and its management,
directors, controlling entities or shareholders, create the opportunity to obtain
value belonging to the company to the detriment of shareholders, and in particular
minority shareholders. Currently, shareholders do not have access to sufficient
information ahead of the planned transaction and do not have adequate tools to
oppose to abusive transactions. As institutional investors and asset managers
are in most cases minority shareholders, more control rights over RPTs would
improve their ability to protect their investments.

Inadequate
transparency of proxy advisors

The current equity
market with its large number of (cross-border) holdings of shares and the complexity
of the issues to be considered make the use of proxy advisors in many cases
inevitable and thus proxy advisors have considerable influence on the voting
behaviour of these investors. Two shortcomings have been observed: 1) the
methodologies used by proxy advisors to make their recommendations do not
always sufficiently take into account local market and regulatory conditions
and 2) proxy advisors provide services to issuers who may affect their
independence and ability to provide an objective and reliable advice.

Difficult and
costly exercise of rights flowing from securities for investors

Investors face
difficulties in exercising the rights flowing from their securities, especially
if the securities are held cross-border. In intermediated holding chains,
especially when they involve many intermediaries, information is not passed to
shareholders from companies or shareholders' votes get lost. There is also a
greater likelihood of misuse of the voting rights by intermediaries. Three main
causes affect the systems: the lack of investor identification, a lack of
timely transmission of information and rights in the investment chain and price
discriminations of cross-border holdings.

Overall the described shortcomings
lead to sub-optimal corporate governance and a risk of suboptimal and/or
excessively short-term focused managerial decisions which result in lost
potential for better financial performance of listed companies and lost
potential for cross-border investment.

A range of options,
including no policy change, have been considered to address each of the
presented problems. In light of the careful assessment of these policy options,
it appeared that the following preferred option would best fulfil the
objectives without imposing disproportionate burdens:

1) Mandatory
transparency of institutional investors and asset managers on their voting and
engagement and certain aspects of asset management arrangements;

2) Disclosure of the
remuneration policy and individual remunerations, combined with a shareholder
vote;

3) Additional
transparency and an independent opinion on more important related party
transactions and submission of the most substantial transactions to shareholder
approval;

4) Binding disclosure
requirements on the methodology and conflicts of interests of proxy advisors;

5) Creating a framework
to allow listed companies to identify their shareholders and requiring
intermediaries to rapidly transmit information related to shareholders and to
facilitate the exercise of shareholder rights.

Following an initial
negative opinion, the Impact Assessment Board adopted a positive opinion on the
revised Impact Assessment on 22 November 2013. It should be noted that the part
of the impact assessment on shareholder identification, transmission of
information and facilitation of the exercise of shareholder rights was
initially dealt with in a separate impact assessment that was cleared by the IAB and
was integrated only in the final impact assessment report at a later stage.

3.           LEGAL
ELEMENTS OF THE PROPOSAL

Legal basis,
subsidiarity and proportionality

The proposal is based
on Article 50(2) (g) and 114 of the Treaty on the Functioning of the European
Union (TFEU) which is the legal basis
for Directive 2007/36/EC. Article
50(2)(g) provides for the EU competence to act in the area of corporate
governance. It provides in particular for coordination measures concerning the
protection of interests of companies’ members and other stakeholders, such as
creditors, with a view to making such protection equivalent throughout the Union. Article 114 is the legal basis for the approximation of the
provisions laid down by law, regulation or administrative action in Member
States which have as their object the establishment and functioning of the
internal market.

According to the
principle of subsidiarity the EU should act only where it can provide better
results than intervention at Member State level and action should be limited to
what is necessary and proportionate in order to attain the objectives of the
policy pursued. As regards this aspect it is important to note that there is
strong evidence that the EU equity market has to a very large extent become a
European/international market.

In view of the
international nature of activities of institutional investors, asset managers
and proxy advisors the objectives relating to engagement of these investors and
the reliability of the advice of proxy advisors cannot be sufficiently achieved
by Member States. Action from Member States would only cover some of the
institutions concerned and would most likely lead to different requirements,
which could lead to an uneven level playing field on the internal market.

On the objectives to
ensure sufficient transparency and shareholder oversight on directors’
remuneration and related party transactions, the existing Member State rules in these areas are very different and as a result, they provide an uneven level of
transparency and protection for investors. In both cases, the result of the
divergence of rules is that investors are, in particular in case of
cross-border investments, subject to difficulties and costs when they want to
monitor companies and engage with them, and have no effective tools to protect
their investments.

Without EU norms, rules
and their application would be different from Member State to Member State, which could be detrimental to the EU level playing field. Without action at EU
level the problems are likely to persist and only partial and fragmented
remedies are likely to be proposed at national level. It therefore results that
the objectives of this amendment are such that they cannot be fulfilled by
unilateral action at the level of the Member States.

Targeted further
development of the EU legal framework for corporate governance would create a
better framework for shareholder engagement. EU rules ensure that the same
transparency obligations will apply across the EU, which guarantees an EU level
playing field and facilitate cross-border investment. As one of the key
underlying problems is information asymmetry, this can only be dealt with
through uniform transparency measures.

Harmonisation of disclosure requirements at EU level would be
a remedy to asymmetry of
information which is detrimental to shareholders and, therefore, plays a key
role for minimising agency costs. It would be beneficial for cross-border investment, since it would facilitate comparison of information
and make engagement easier and thus less costly. Moreover, it would make
companies more accountable to other stakeholders like employees. Common standards
at EU level are necessary to promote a well-functioning internal market and
avoid the development of different rules and practices in the Member States.

Nevertheless, Member States should have a degree
of flexibility as far as the transparency and information required in this
proposal are concerned, in particular in order to allow the norms to adequately
fit into the distinct corporate governance frameworks. To allow for such
flexibility only some basic principles regarding shareholder identification,
transmission of information by intermediaries and facilitation of the exercise of
rights should be ensured. Moreover, institutional investors and asset managers
should comply with certain of the obligations only on a comply or explain
basis, for remuneration of directors the provisions only ensure the necessary
transparency and a shareholders vote, while leaving the structure and level of
remuneration to companies, while proxy advisors will only be subject to some
basic principles to ensure accuracy and reliability of their recommendations.

To this end, an amendment to the
Shareholders Right Directive is the most appropriate legal instrument as it
allows a certain flexibility for Member States, while at the same time
providing the needed level of harmonization. Amending the Directive also
ensures that the content and form of the proposed EU action does not go beyond
what is necessary and proportionate in order to achieve the regulatory
objective.

Identification of shareholders has
an impact on fundamental rights recognised in particular in the Treaty on the
Functioning of the European Union (TFEU) and in the Charter of Fundamental
Rights of the European Union (Charter), notably the right to the protection of
personal data recognized in Article 16 TFEU and in Article 8 of the Charter. In
view of this and of Directive 95/46/EC of the European Parliament and of the
Council of 24 October 1995[13]it
is necessary to strike a balance between the facilitation of the exercise of
shareholders' rights and the right to privacy and the protection of personal
data. The identification information on shareholders is limited to the name and
contact details of the corresponding shareholders and can only be used for
facilitation of the exercise of shareholder rights.

Detailed Explanation
of the Proposal

Improving engagement of institutional investors and asset
managers

Articles 3f until 3h will increase the transparency of
institutional investors and asset managers. They will be required by these
articles to develop a policy on shareholder engagement, which should contribute
to managing actual or potential conflicts of interests with regard to
shareholder engagement. They should in principle disclose to the public their
engagement policy, how it has been
implemented and the results thereof.Where
institutional investors or asset managers decide not to
develop an engagement policy and/or decide not to disclose the implementation
and results thereof, they shall
give a clear and reasoned explanation as to why this is the case.

Institutional investors will be required to disclose to the public how their equity
investment strategy is aligned with the profile and duration of their
liabilities and it contributes to the medium to long-term performance of their
assets. Where they make use of an asset manager the institutional investor will
have to disclose to the public the main elements of the arrangement with the
asset manager with regard to a number of important elements listed in the
article 3g. Where the arrangement with the asset manager does not contain such
elements the institutional investor shall
give a clear and reasoned explanation as to why this is the case.

Asset managers will be required to disclose on a half-yearly basis to institutional investors
how their investment strategy and implementation thereof is in accordance with
the arrangement and how the investment strategy and decisions contributes to
medium to long-term performance of the assets of the institutional investor.
They should moreover disclose to the institutional investor on a half-yearly
basis a number of important elements related to the execution of the
arrangement with the institutional investor.

Strengthening
the link
between pay and performance of directors

The
proposal aims at creating more
transparency on remuneration policy and the actual remuneration awarded to
directors and creating a better
link between pay and performance of directors by improving shareholder
oversight of directors’ remuneration. The proposal does not regulate the level of
remuneration and leaves decisions on this to companies and their shareholders.

Articles 9a and 9b will require listed companies to publish detailed and
user-friendly information on the remuneration policy and on the individual
remuneration of directors, and Article 9b empowers the Commission to provide
for a standardized presentation of some of this information in an implementing
act. As is clarified in Article 9a
paragraph 3 and 9b paragraph 1 all benefits of directors in whatever form will be
included in the remuneration policy and report. The Articles give shareholders the right to approve the remuneration
policy and to vote on the remuneration report, which describes how the
remuneration policy has been applied in the last year. Therefore, such report
facilitates the exercise of shareholder rights and ensures accountability of
directors.

Board structures vary significantly between Member States.
In Member States with a two tier system the supervisory board plays a very
important role and is responsible for the remuneration for the members of the
management board. This proposal would not affect the key role of the
supervisory board in two tier systems. It would still be the supervisory board
that would develop the remuneration policy to be submitted to shareholders for confirmation.
Most importantly, it would still be for the board, on the basis of the policy, to
decide on the actual remuneration to be paid. The requirement of a shareholder
vote will, in line with the general objectives of the proposal, increase the
engagement that the board will seek with its shareholders.

Improving shareholder oversight on related party
transactions

The new article 9c will require listed companies
that related party transactions
representing more than 5% of the companies’ assets or transactions which can
have a significant impact on profits or turnover to submit these transactions
to the approval of shareholders and may not unconditionally conclude it without
their approval. For smaller related party transactions that represent more than
1% of their assets, listed companies shall publicly announce such transactions
at the time of the conclusion of the transaction, and accompany the
announcement by a report from an independent third party assessing whether  the
transaction is on market terms and
confirming whether it is fair and reasonable from the perspective of the
shareholders. In order to target only transactions that could
be most disadvantageous for minority shareholders and to keep administrative
burden limited Member States should be allowed to exclude transactions entered
into between the company and members of its group that are fully owned by the
listed company. For the same reason, Member States should also be able to allow
companies to request the advance approval by shareholders for certain clearly
defined types of recurrent transactions above 5 percent of the assets, and to
request from shareholders an advance exemption from the obligation to produce
an independent third party report for recurrent transactions above 1 percent of
the assets, under certain conditions.  According to the Impact
assessment, the most significant costs would be linked to the fairness opinion
by an independent advisor. However, depending on the complexity of the
transaction, an experienced advisor should be able to assess the fairness of
the given transaction within between approximately 5 and 10 hours. This could
result in a cost of maximum 2,500-5,000 € in case the opinion is made by an
auditor.

Enhancing transparency of proxy advisors

Article 3i will require
proxy advisors to adopt and
implement adequate measures to guarantee that their voting recommendations are
accurate and reliable, based on a thorough analysis of all the information that
is available to them and are not
affected by any existing or potential conflict of interest or business
relationship. Proxy advisors are
required by this article to publicly disclose certain key information related
to the preparation of their voting recommendations and, to their clients and
the listed companies concerned information on any actual or potential conflict
of interest or business relationships that may influence the preparation of the
voting recommendations.

Facilitating
the exercise of
rights flowing from securities for investors

Articles 3a  of the proposal requires Member
States to ensure that intermediaries offer to listed companies the possibility
to have their shareholders identified. Intermediaries should, on the request of
such a company communicate without undue delay the name and contact details of
the shareholders. Where there is more than one intermediary in a holding chain,
the request of the company and the identity and contact details of the
shareholders shall be transmitted between intermediaries without undue delay. For
legal identities also their unique identifier, where available, should be
should be transmitted. Such identifier
allows a legal person to be identified by a number that is unique
at EU level. On international level the Legal Entity Identifier has been
proposed by the Financial Stability
Board (FSB) and endorsed by the G20, to ensure consistent and comparable data.
This is a necessary component of this project making it easier to track
companies in cross-border situations through centralised searches by electronic
systems. The Regulation on improving
securities settlement in the European Union and on central securities
depositories (CSDs) and amending Directive 98/26/EC will ensure that the shares of listed companies shall be
represented in book-entry form. In
order to protect as much as possible the personal data of shareholders,
intermediaries shall inform them that their name and contact details may be
transmitted for the purpose of identification, while the information may not
use this information for any other purpose than the facilitation of the
exercise of the rights of the shareholder. Moreover, shareholders will be able
to rectify or erase any incomplete or inaccurate data and the information
should not be conserved for longer than 24 months.

Article 3b provides
that if a listed company chooses not to directly communicate with its
shareholders, the relevant information shall be transmitted to them by the
intermediary. Listed companies are required to provide and deliver the
information to the intermediary related to the exercise of rights flowing from
shares in a standardised and timely manner. Where there is more than one
intermediary in a holding chain, information referred to in paragraphs 1 and 3
shall be transmitted between intermediaries without undue delay.

Article 3c requires that intermediaries facilitate the
exercise of the rights by the shareholder, including the right to participate
and vote in general meetings and requires companies to confirm the votes cast
in general meetings by or on behalf of shareholders. In case the intermediary
casts the vote, it shall transmit the voting confirmation to the shareholder. Articles
3a until 3c empower the Commission to adopt implementing acts to ensure an
efficient and effective system of shareholder identification, transmission of
information and facilitation of exercise of shareholder rights.

4.           BUDGETARY
IMPLICATION

The proposal has no
implications for the Union budget.

5.           EXPLANATORY
DOCUMENTS

According to the Joint
Political Declaration of 28 September  2011, the Commission should only request
explanatory documents if it can "justify on a case by case basis [...] the
need for, and the proportionality of, providing such documents, taking into
account, in particular and respectively, the complexity of the directive and of
its transposition, as well as the possible administrative burden".

The Commission
considers that in this particular case it is justified to ask Member States to
provide explanatory documents to the Commission due to the implementation
challenges that will arise in the context of this proposal. The proposal aims
to regulate a number of aspects of corporate governance and would cover a
number of different players in that area, such as listed companies,
institutional investors and asset managers, proxy advisors and intermediaries.
Therefore it is likely that the provisions of his Directive will be transposed
into several acts at national level.

In this context, the
notification of transposition measures will be essential to clarify the
relationship between the provisions of this Directive and national
transposition measures, and therefore to assess the conformity of national
legislation with the Directive.

The simple notification
of individual transposition measures would not be self-explanatory and would
not allow the Commission to ensure that all the EU legal provisions were
faithfully and fully implemented. The explanatory documents are necessary to
obtain a clear and comprehensive picture of the transposition. Member States
are encouraged to present the explanatory documents in the form of easily
readable conformity tables.

Given the above, the
following recital is included in the proposed Directive: "In accordance
with the Joint Political Declaration of Member States and the Commission on
explanatory documents of 28 September 2011, Member States have undertaken to
accompany, in justified cases, the notification of their transposition measures
with one or more documents explaining the relationship between the components
of a directive and the corresponding parts of national transposition
instruments. With regard to this Directive, the legislator considers the
transmission of such documents to be justified."

2014/0121 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL

amending Directive 2007/36/EC as regards
the encouragement of long-term shareholder engagement and Directive 2013/34/EU
as regards certain elements of the corporate governance statement

(Text with EEA relevance)

THE EUROPEAN
PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the
Treaty on the Functioning of the European Union, and in particular
Article 50 and 114 thereof,

Having regard to the
proposal from the European Commission,

After transmission of
the draft legislative act to the national Parliaments,

Having regard to the
opinion of the European Economic and Social Committee[14]

After consulting the
European Data Protection Supervisor,

Acting in accordance
with the ordinary legislative procedure,

Whereas:

(1)       Directive 2007/36/EC of the European Parliament and of the
Council[15] establishes
requirements in relation to the exercise of certain shareholder rights
attaching to voting shares in relation to general meetings of companies which
have their registered office in a Member State and whose shares are admitted to
trading on a regulated market situated or operating within a Member State.

(2)       The
financial crisis has revealed that shareholders in many cases supported
managers' excessive short-term risk taking. Moreover, there is clear evidence
that the current level of “monitoring” of investee companies and engagement by
institutional investors and asset managers is inadequate, which may lead to
suboptimal corporate governance and performance of listed companies.

(3)       In the
Action Plan on European company law and corporate governance[16] the Commission announced a number of actions in the area
of corporate governance, in particular to encourage long-term shareholder engagement and to enhance transparency between companies and investors.

(4)       In
order to further facilitate the exercise of shareholder rights and engagement
between listed companies and shareholders, listed companies should have the possibility
to have their shareholders identified and directly communicate with them.
Therefore, this Directive should provide for a framework to ensure that
shareholders can be identified.

(5)       The
effective exercise of their rights by shareholders depends to a large extent on
the efficiency of the chain of intermediaries maintaining securities accounts
for shareholders, especially in a cross-border context. This Directive aims at
improving the transmission of information by intermediaries through the equity
holding chain to facilitate the exercise of shareholder rights.

(6)       In
view of the important role of intermediaries they should be obliged to
facilitate the exercise of rights by the shareholder both when he would like to
exercise these rights himself or wants to nominate a third person to do so.
When the shareholder does not want to exercise the rights himself and has nominated
the intermediary as a third person, the latter should be obliged to exercise
these rights upon the explicit authorisation and instruction of the shareholder
and for his benefit.

(7)       In
order to promote equity investment throughout the Union and the exercise of
rights related to shares, this Directive should prevent price discrimination of
cross-border as opposed to purely domestic share holdings by means of better
disclosure of prices, fees and charges of services provided by intermediaries.
Third country intermediaries which have established a branch in the Union should
be subject to the rules on shareholder identification, transmission of
information, facilitation of shareholder rights and transparency of prices, fee
and charges to ensure effective application of the provisions on shares held
via such intermediaries;

(8)       Effective
and sustainable shareholder engagement is one of the cornerstones of listed
companies’ corporate governance model, which depends on checks and balances
between the different organs and different stakeholders.

(9)       Institutional
investors and asset managers are important shareholders of listed companies in
the Union and therefore can play an important role in the corporate governance
of these companies, but also more generally with regard to the strategy and
long-term performance of these companies. However, the experience of the last
years has shown that institutional investors and asset managers often do not
engage with companies in which they hold shares and evidence shows that capital
markets exert pressure on companies to perform in the short term, which may
lead to a suboptimal level of investments, for example in research and
development to the detriment to long-term performance of both the companies and
the investor.

(10)     Institutional
investors and asset managers are often not transparent about investment
strategies and their engagement policy and the implementation thereof. Public
disclosure of such information could have a positive impact on investor
awareness, enable ultimate beneficiaries such as future pensioners optimise
investment decisions, facilitate the dialogue between companies and their
shareholders, encourage shareholder engagement and strengthen companies’
accountability to civil society.

(11)     Therefore,
institutional investors and asset managers should develop a policy on
shareholder engagement, which determines, amongst others, how they integrate
shareholder engagement in their investment strategy, monitor investee
companies, conduct dialogues with investee companies and exercise voting
rights. Such engagement policy should include policies to manage actual or
potential conflicts of interests, such as the provision of financial services
by the institutional investor or asset manager, or companies affiliated to
them, to the investee company.This policy, its implementation and the results thereof should be publicly disclosed on an annual
basis. Where institutional investors or asset managers decide not to
develop an engagement policy and/or decide not to disclose the implementation
and results thereof, they shall
give a clear and reasoned explanation as to why this is the case.

(12)     Institutional
investors should annually disclose to the public how their equity investment
strategy is aligned with the profile and duration of their liabilities and how
it contributes to the medium to long-term performance of their assets. Where
they make use of asset managers, either through discretionary mandates
involving the management of assets on an individual basis or through pooled
funds, they should disclose to the public the main elements of the arrangement
with the asset manager with regard to a number of issues, such as whether it
incentivises the asset manager to align its investment strategy and decisions
with the profile and duration of the liabilities of the institutional investor,
whether it incentivises the asset manager to make investment decisions based on
medium to long-term company performance and to engage with companies, how it
evaluates the asset managers performance, the structure of the consideration
for the asset management services and the targeted portfolio turnover. This
would contribute to a proper alignment of interests between the final
beneficiaries of institutional investors, the asset managers and the investee
companies and potentially to the development of longer-term investment
strategies and longer-term relationships with investee companies involving
shareholder engagement.

(13)     Asset
managers should be required to disclose to institutional investors how their
investment strategy and the implementation thereof is in accordance with the
asset management arrangement and how the investment strategy and decisions
contributes to medium to long-term performance of the assets of the
institutional investor. Moreover, they should disclose whether they make
investment decisions on the basis of judgements about medium-to long-term
performance of the investee company, how their portfolio was composed and the
portfolio turnover, actual or potential conflicts of interest and whether the
asset manager uses proxy advisors for the purpose of their engagement
activities. This information would allow the institutional investor to better
monitor the asset manager, provide incentives for a proper alignment of
interests and for shareholder engagement.

(14)     In
order to improve the information in the equity investment chain Member States
should ensure that proxy advisors
adopt and implement adequate measures to guarantee that their voting
recommendations are accurate and reliable, based on a thorough analysis of all
the information that is available to them and are not affected by any existing or potential conflict of
interest or business relationship. They should disclose certain key information
related to the preparation of their
voting recommendations and any actual or potential conflict of interest or
business relationships that may influence the preparation of the voting
recommendations.

(15)     Since
remuneration is one of the key instruments for companies to align their interests
and those of their directors and in view of the crucial role of directors in
companies, it is important that the remuneration policy of companies is
determined in an appropriate manner. Without prejudice to the provisions on
remuneration of Directive
2013/36/EU of the European Parliament and of the Council[17] listed companies and their shareholders should have the
possibility to define the remuneration policy of the directors of their
company.

(16)     In
order to ensure that shareholders have an effective say on the remuneration
policy, they should be granted the right to approve the remuneration policy, on
the basis of a clear, understandable and comprehensive overview of the
company's remuneration policy, which should be aligned with the business strategy,
objectives, values and long-term interests of the company and should
incorporate measures to avoid conflicts of interest. Companies should only pay
remuneration to their directors in accordance with a remuneration policy that
has been approved by shareholders. The approved remuneration policy should be
publicly disclosed without delay.

(17)     To
ensure that the implementation of the remuneration policy is in line with the
approved policy, shareholders should be granted the right to vote on the
company’s remuneration report. In order to ensure accountability of directors the
remuneration report should be clear and understandable and should provide a
comprehensive overview of the remuneration granted to individual directors in
the last financial year . Where the shareholders vote against the remuneration
report, the company should explain in the next remuneration report how the vote
of the shareholders has been taken into account.

(18)     In
order to provide shareholders easy access to all relevant corporate governance
information the remuneration report should be part of the corporate governance
statement that listed companies should publish in accordance with article 20 of
Directive 2013/34/EU of the
European Parliament and of the Council of 26 June 2013[18].

(19)     Transactions with related parties may cause
prejudice to companies and their shareholders, as they may give the related
party the opportunity to appropriate value belonging to the company. Thus,
adequate safeguards for the protection of shareholders’ interests are of
importance. For this reason Member States should ensure that related party
transactions representing more than 5 % of the companies’ assets or
transactions which can have a significant impact on profits or turnover should
be submitted to a vote by the shareholders in a general meeting. Where the
related party transaction involves a shareholder, this shareholder should be
excluded from that vote. The company should not
be allowed to conclude the
transaction before the shareholders’ approval of the transaction. For
transactions with related parties that represent more than 1% of their assets
companies should publicly announce such transactions at the time of the
conclusion of the transaction, and accompany the announcement by a report from
an independent third party assessing
whether the transaction is on market terms and confirming that the transaction
is fair and reasonable from the perspective of the shareholders, including
minority shareholders. Member
States should be allowed to exclude transactions entered into between the
company and its wholly owned subsidiaries. Member States should also be able to
allow companies to request the advance approval by shareholders for certain
clearly defined types of recurrent transactions above 5 percent of the assets,
and to request from shareholders an advance exemption from the obligation to
produce an independent third party report for recurrent transactions above 1
percent of the assets, under certain conditions, in order to facilitate the
conclusion of such transactions by companies.

(20)     In view
of Directive 95/46/EC of the European Parliament and of the Council of 24
October 1995[19]it is necessary to strike a balance between the
facilitation of the exercise of shareholders' rights and the right to privacy and
the protection of personal data. The identification information on shareholders
should be limited to the name and contact details of the corresponding
shareholders. This information should be accurate and kept up-to-date, and
intermediaries as well as companies should allow for rectification or erasure
of all incorrect or incomplete data. This identification information on
shareholders should not be used for any other purpose than the facilitation of
the exercise of shareholder rights.

(21)     In
order to ensure uniform conditions for the implementation of the provisions on
shareholder identification, transmission of information, facilitation of the
exercise of shareholder rights and the remuneration report, implementing powers
should be conferred on the Commission. Those powers should be exercised in
accordance with Regulation (EU) No 182/2011 of the European Parliament and of
the Council[20]

(22)     In order to ensure that the requirements set out
in this Directive or the measures implementing this Directive are applied in
practice, any infringement of those requirements should be subject to
penalties. To that end, penalties should be sufficiently dissuasive and
proportionate.

(23)     Since
the objectives of this Directive cannot be sufficiently achieved by the Member
States in view of the international nature of the Union equity market and
action by Member States alone is likely to result in different sets of rules,
which may undermine or create new obstacles to the functioning of the internal
market, the objectives can rather, by reason of their scale and effects, be
better achieved at Union level, the Union may adopt measures, in accordance
with the principle of subsidiarity as set out in Article 5 of the Treaty on
European Union. In accordance with the principle of proportionality, as set out
in that Article, this Directive does not go beyond what is necessary in order
to achieve those objectives.'

(24)     In
accordance with the Joint Political Declaration of Member States and the
Commission of 28 September 2011 on explanatory documents[21], Member
States have undertaken to accompany, in justified cases, the notification of
their transposition measures with one or more documents explaining the
relationship between the components of a directive and the corresponding parts of
national transposition instruments. With regard to this Directive, the
legislator considers the transmission of such documents to be justified,

HAVE ADOPTED
THIS DIRECTIVE:

Article 1
Amendments to Directive 2007/36/EC

Directive 2007/36/EC is
amended as follows:

(1) 
Article 1 is amended as
follows:

(a) 
In Paragraph 1, the
following sentence is added:

“It also
establishes requirements for intermediaries used by shareholders to ensure that
shareholders can be identified, creates transparency on the engagement policies
of certain types of investors and creates additional rights for shareholders to
oversee companies.”

(b) 
The following paragraph 4 is
added:

“4. Chapter Ib shall apply to institutional
investors and to asset managers to the extent that they invest, directly or
through a collective investment undertaking, on behalf of institutional
investors, in so far they invest in shares.”

(2) 
In Article 2 the following
points (d) -(j) are added:

“(d) ‘intermediary’
means a legal person that has its registered office, central administration or
principal place of business in the European Union and maintains securities
accounts for clients;

(e) third country intermediary’ means a legal person
that has its registered office, central administration or principal place of
business outside the Union and maintains securities accounts for clients;

(f) ‘institutional
investor’ means an undertaking carrying out activities of life assurance within
the meaning of Article 2(1)(a) and not excluded pursuant to article 3 of
Directive 2002/83/EC of the European Parliament and of the Council[22] and an
institution for occupational retirement provision falling within the scope of
Directive 2003/41/EC of the European Parliament and of the Council[23] in
accordance with Article 2 thereof, unless a Member States has chosen not to
apply that Directive in whole or in parts to that institution in accordance
with Article 5 of that Directive;

(g) ‘asset
manager’ means an investment firm as defined in point (1) of Article 4(1) of
Directive 2004/39/EC of the European Parliament and of the Council[24] providing
portfolio management services to institutional investors, an AIFM (alternative
investment fund manager) as defined in Article 4(1)(b) of Directive 2011/61/EU of
the European Parliament and of the Council[25] that does not fulfil the conditions
for an exemption in accordance with Article 3 of that Directive or a management
company as defined in Article 2(1)(b) of Directive 2009/65/EC of the European
Parliament and of the Council[26];
or an investment company authorised in accordance with Directive 2009/65/EC, provided that it has not
designated a management company authorised under that Directive for its
management;

(h) ‘shareholder
engagement’ means the monitoring by a shareholder alone or together with other
shareholders, of companies on matters such as strategy, performance, risk,
capital structure and corporate governance, having a dialogue with companies on
these matters and voting at the general meeting.

(i) ‘proxy
advisor’ means a legal person that provides,
on a professional basis, recommendations to shareholders on the exercise of
their voting rights;

(l) ‘Director’ means any member of the administrative,
management or supervisory bodies of a company;

(j) ‘related party’ has
the same meaning as in the international accounting standards adopted in
accordance with Regulation (EC) No 1606/2002 of the European Parliament and of
the Council[27].

(3) 
After Article 3, the
following Chapters Ia and 1b are inserted

“Chapter Ia
Identification of shareholders, Transmission of information and facilitation of
exercise of shareholder rights

Article 3a
Identification of shareholders

1.           Member States shall ensure that
intermediaries offer to companies the possibility  to have their shareholders identified.

2.           Member
States shall ensure that, on the request of the company, the intermediary
communicates without undue delay to the company the name and contact details of
the shareholders and, where the shareholders are legal persons, their unique
identifier where available. Where there is more than one intermediary in a
holding chain, the request of the company and the identity and contact details
of the shareholders shall be transmitted between intermediaries without undue
delay.

3.           Shareholders
shall be duly informed by their intermediary that their name and contact
details may be transmitted for the purpose of identification in accordance with
this article. This information may only be used for the purpose of facilitation
of the exercise of the rights of the shareholder. The company and the intermediary
shall ensure that natural persons are able to rectify or erase any incomplete
or inaccurate data and shall not conserve the information relating to the
shareholder for longer than 24 months after receiving it.

4.           Member
States shall ensure that an intermediary that reports the name and contact
details of a shareholder is not considered in breach of any restriction on
disclosure of information imposed by contract or by any legislative, regulatory
or administrative provision.

5.           The
Commission shall be empowered to adopt implementing acts to specify the
requirements to transmit the information laid down in paragraphs 2 and 3 including
as regards the information to be transmitted, the format of the request and the
transmission and the deadlines to be complied with. Those implementing acts
shall be adopted in accordance with the examination procedure referred to in
Article 14a (2).

Article 3b
Transmission of information

1.           Member
States shall ensure that if a company chooses not to directly communicate with
its shareholders, the information related to their shares shall be transmitted
to them or, in accordance with the instructions given by the shareholder, to a
third party, by the intermediary without undue delay in all of the following
cases:

(a) 
the information is necessary
to exercise a right of the shareholder flowing from its shares;

(b) 
the information is directed
to all shareholders in shares of that class.

2.           Member
States shall require companies to provide and deliver the information to the
intermediary related to the exercise of rights flowing from shares in
accordance with paragraph 1 in a standardised and timely manner.

3.           Member
States shall oblige the intermediary to transmit to the company, in accordance
with the instructions received from the shareholders, without undue delay the
information received from the shareholders related to the exercise of the
rights flowing from their shares.

4.           Where
there is more than one intermediary in a holding chain, information referred to
in paragraphs 1 and 3 shall be transmitted between intermediaries without undue
delay.

5.           The
Commission shall be empowered to adopt implementing acts to specify the
requirements to transmit information laid down in paragraphs 1 to 4 including as
regards the content to be transmitted, the deadlines to be complied with and
the types and format of information to be transmitted. Those implementing acts
shall be adopted in accordance with the examination procedure referred to in
Article 14a (2).

Article 3c
Facilitation of the exercise of shareholder rights

1.           Member
States shall ensure that the intermediary facilitates the exercise of the
rights by the shareholder, including the right to participate and vote in
general meetings. Such facilitation shall comprise at least either of the
following:

(a) 
the intermediary makes the
necessary arrangements for the shareholder or a third person nominated by the
shareholder to be able to exercise themselves the rights;

(b) 
the intermediary exercises
the rights flowing from the shares upon the explicit authorisation and
instruction of the shareholder and for his benefit.

2.           Member
States shall ensure that companies confirm the votes cast in general meetings
by or on behalf of shareholders. In case the intermediary casts the vote, it
shall transmit the voting confirmation to the shareholder. Where there is more
than one intermediary in the holding chain the confirmation shall be
transmitted between intermediaries without undue delay.

3.           The
Commission shall be empowered to adopt implementing acts to specify the
requirements to facilitate the exercise of shareholder rights laid down in
paragraphs 1 and 2 of this Article including as regards the type and content of
the facilitation, the form of the voting confirmation and the deadlines to be
complied with. Those implementing acts shall be adopted in accordance with the
examination procedure referred to in Article 14a(2).

Article 3d
Transparency on costs

1.           Member
States shall allow intermediaries to charge prices or fees for the service to
be provided under this chapter. Intermediaries shall publicly disclose prices,
fees and any other charges separately for each service referred to in this
chapter.

2.           Member
States shall ensure that any charges that may be levied by an intermediary on
shareholders, companies and other intermediaries shall be non-discriminatory
and proportional. Any differences in the charges levied between domestic and
cross-border exercise of rights shall be duly justified.

Article 3e
Third country intermediaries

A third country
intermediary who has established a branch in the Union shall be subject to this
chapter.”

Chapter Ib
Transparency of institutional
investors, asset managers and proxy advisors

Article 3f
Engagement policy

1.           Member
States shall ensure that institutional investors and asset managers develop a
policy on shareholder engagement (“engagement policy”) This engagement policy
shall determine how institutional investors and asset managers conduct all of the
following actions:

(a) 
to integrate shareholder
engagement in their investment strategy;

(b) 
to monitor investee
companies, including on their non-financial performance;

(c) 
to conduct dialogues with
investee companies;

(d) 
to exercise voting rights;

(e) 
to use services provided by
proxy advisors;

(f) 
to cooperate with other
shareholders.

2.           Member
States shall ensure that the engagement policy includes policies to manage
actual or potential conflicts of interests with regard to shareholder
engagement. Such policies shall in particular be developed for all of the
following situations:

(a) 
the institutional investor
or the asset manager, or other companies affiliated to them, offer financial
products to or have other commercial relationships with the investee company;

(b) 
a director of the
institutional investor or the asset manager is also a director of the investee
company;

(c) 
an asset manager managing
the assets of an institution for occupational retirement provision invests in a
company that contributes to that institution;

(d) 
the institutional investor
or asset manager is affiliated with a company for whose shares a takeover bid
has been launched.

3.           Member
States shall ensure that institutional investors and asset managers publicly
disclose on an annual basis their engagement policy, how it has been implemented and the results thereof. The information referred to in the first
sentence shall at least be available on the company's website. Institutional
investors and asset managers shall,
for each company in which they hold
shares, disclose if and how they cast their votes in the general meetings of
the companies concerned and provide an explanation for their voting behaviour.
Where an asset manager casts votes on behalf of an institutional investor, the
institutional investor shall make a reference as to where such voting
information has been published by the asset manager.

4.           Where
institutional investors or asset managers decide not to
develop an engagement policy or decide not to disclose the implementation and
results thereof, they shall give a
clear and reasoned explanation as to why this is the case.

Article 3g
Investment strategy of institutional investors and arrangements with asset
managers

1.           Member
States shall ensure that institutional investors disclose to the public how
their equity investment strategy (“investment strategy”) is aligned with the
profile and duration of their liabilities and how it contributes to the medium
to long-term performance of their assets. The information referred to in the
first sentence shall at least be available on the company's website as long as
it is applicable.

2.           Where
an asset manager invests on behalf of an institutional investor, either on a discretionary
client-by-client basis or through a collective investment undertaking, the
institutional investor shall annually disclose to the public the main elements
of the arrangement with the asset manager with regard to the following issues:

(a) 
whether and to what extent
it incentivises the asset manager to align its investment strategy and
decisions with the profile and duration of its liabilities;

(b) 
whether and to what extent
it incentivises the asset manager to make investment decisions based on medium
to long-term company performance, including non-financial performance, and to
engage with companies as a means of improving company performance to deliver
investment returns;

(c) 
the method and time horizon
of the evaluation of the asset manager’s performance, and in particular
whether, and how this evaluation takes long-term absolute performance into
account as opposed to performance relative to a benchmark index or other asset
managers pursuing similar investment strategies;

(d) 
how the structure of the
consideration for the asset management services contributes to the alignment of
the investment decisions of the asset manager with the profile and duration of
the liabilities of the institutional investor;

(e) 
the targeted portfolio
turnover or turnover range, the method used for the turnover calculation, and
whether any procedure is established when this is exceeded by the asset
manager;

(f) 
the duration of the
arrangement with the asset manager.

Where the arrangement
with the asset manager does not contain one or more of the elements referred to
in points (a) to (f), the institutional investor shall give a clear and reasoned explanation as to why this
is the case.

Article 3h
Transparency of asset managers

1.           Member
States shall ensure that asset managers disclose on a half-yearly basis to the
institutional investor with which they have entered into the arrangement referred
to in Article 3g(2) how their investment strategy and implementation thereof complies
with that arrangement and how the investment strategy and implementation
thereof contributes to medium to long-term performance of the assets of the
institutional investor.

2.           Member
States shall ensure that asset managers disclose to the institutional investor
on a half-yearly basis all of the following information:

(a) 
whether or not, and if so
how, they make investment decisions on the basis of judgements about medium-to
long-term performance of the investee company, including non-financial
performance;

(b) 
how the portfolio was
composed and provide an explanation of significant changes in the portfolio in
the previous period;

(c) 
the level of portfolio
turnover, the method used to calculate it and an explanation if the turnover
exceeded the targeted level;

(d) 
portfolio turnover costs;

(e) 
their policy on securities
lending and the implementation thereof;

(f) 
whether or not, and if so,
what actual or potential conflicts of interest have arisen in connection with
engagement activities and how the asset manager has dealt with them;

(g) 
whether or not, and if so
how, the asset manager uses proxy advisors for the purpose of their engagement
activities.

3.           The
information disclosed pursuant to paragraph 2 shall be provided free of charge
and, in case the asset manager does not manage the assets on a discretionary
client-by-client basis, it shall also be provided to other investors on
request.

Article 3i
Transparency of proxy advisors

1.           Member States shall ensure that proxy advisors adopt and
implement adequate measures to guarantee that their voting recommendations are
accurate and reliable, based on a thorough analysis of all the information that
is available to them.

2.           Proxy advisors shall on an annual basis publicly
disclose all of the following information in relation to the preparation of
their voting recommendations:

(a) 
the essential features of
the methodologies and models they apply;

(b) 
the main information sources
they use;

(c) 
whether and, if so, how they
take national market, legal and regulatory conditions into account;

(d) 
whether they have dialogues
with the companies which are the object of their voting recommendations, and,
if so, the extent and nature thereof;

(e) 
the total number of staff
involved in the preparation of the voting recommendations;

(f) 
the total number of voting
recommendations provided in the last year.

That information shall be
published on their website and remain available for at least three years from
the day of publication.

3.           Member States shall ensure that proxy advisors
identify and disclose without undue delay to their clients and the company
concerned any actual or potential conflict of interest or business
relationships that may influence the preparation of the voting recommendations
and the actions they have undertaken to eliminate or mitigate the actual or potential
conflict of interest.”

(4) 
The following articles 9a,
9b and 9c are inserted:

“Article 9a
Right to vote on the remuneration policy

1.           Member States shall ensure that
shareholders have the right to vote on the remuneration policy as regards
directors. Companies shall only pay remuneration to their directors in
accordance with a remuneration policy that has been approved by shareholders.
The policy shall be submitted for approval by the shareholders at least every
three years.

Companies may, in case of recruitment of new board members,
decide to pay remuneration to an individual director outside the approved
policy, where the remuneration package of the individual director has received
prior approval by shareholders on the basis of  information on the matters referred
to in paragraph 3. The remuneration may be awarded provisionally pending
approval by the shareholders.

2.           Member
States shall ensure that the policy is clear, understandable, in line with the
business strategy, objectives, values and long-term interests of the company
and that it incorporates measures to avoid conflicts of interest.

3.           The
policy shall explain how it contributes to the long-term interests and
sustainability of the company. It shall set clear criteria for the award of
fixed and variable remuneration, including all benefits in whatever form.

The policy shall
indicate the maximum amounts of total remuneration that can be awarded, and the
corresponding relative proportion of the different components of fixed and
variable remuneration. It shall explain how the pay and employment conditions
of employees of the company were taken into account when setting the policy or
directors' remuneration by explaining the ratio between the average
remuneration of directors and the average remuneration of full time employees
of the company other than directors and why this ratio is considered
appropriate. The policy may exceptionally be without a ratio in case of
exceptional circumstances. In that case, it shall explain why there is no ratio
and which measures with the same effect have been taken.

For variable remuneration, the policy shall indicate the
financial and non-financial performance criteria to be used and explain how
they contribute to the long-term interests and sustainability of the company, and the methods to be applied to
determine to which extent the performance criteria have been fulfilled; it
shall specify the deferral periods, vesting periods for share-based
remuneration and retention of shares after vesting, and information on the possibility
of the company to reclaim variable remuneration.

The policy shall indicate the main terms of the contracts
of directors, including its duration and the applicable notice periods and
payments linked to termination of contracts.

The policy shall explain the decision-making process
leading to its determination. Where the policy is revised, it shall include an
explanation of all significant changes and how it takes into account the views
of shareholders on the policy and report in the previous years.

4.           Member
States shall ensure that after approval by the shareholders the policy is made public
without delay and available on the company's website at least as long as it is
applicable.

Article 9b
Information to be provided in the remuneration report and right to vote on
the remuneration report

1.           Member
States shall ensure that the company draws up a clear and understandable remuneration
report, providing a comprehensive overview of the remuneration, including all
benefits in whatever form, granted to individual directors, including to newly
recruited and former directors, in the last financial year. It shall, where
applicable, contain all of the following elements:

(a) 
the total remuneration
awarded or paid split out by component, the relative proportion of fixed and
variable remuneration, an explanation how the total remuneration is linked to long-term
performance and information on how the performance criteria where applied;

(b) 
the relative change of the
remuneration of directors over the last three financial years, its relation to
the development of the value of the company and to change in the average
remuneration of full time employees of the company other than directors;

(c) 
any remuneration received by
directors of the company from any undertaking belonging to the same group;

(d) 
the number of shares and
share options granted or offered, and the main conditions for the exercise of
the rights including the exercise price and date and any change thereof;

(e) 
information on the use of
the possibility to reclaim variable remuneration;

(f) 
information on how the
remuneration of directors was established, including on the role of the
remuneration committee.

2.           Member
States shall ensure that the right to privacy of natural persons is protected
in accordance with Directive 95/46/EC when personal data of the director are
processed.

3.           Member
States shall ensure that shareholders have the right to vote on the
remuneration report of the past financial year during the annual general
meeting. Where the shareholders vote against the remuneration report the
company shall explain in the next remuneration report whether or not and, if
so, how, the vote of the shareholders has been taken into account.

4.           The
Commission shall be empowered to adopt implementing acts to specify the
standardised presentation of the information laid down in paragraph 1 of this
Article. Those implementing acts shall be adopted in accordance with the
examination procedure referred to in Article 14a (2).

Article 9c
Right to vote on related party transactions

1.           Member
States shall ensure that companies, in case of transactions with related
parties that represent more than 1% of their assets, publicly announce such
transactions at the time of the conclusion of the transaction, and accompany
the announcement by a report from an independent third party assessing whether or not it is on market terms and confirming that the transaction is fair and reasonable from the
perspective of the shareholders, including minority shareholders. The
announcement shall contain information on the nature of the related party
relationship, the name of the related party, the amount of the transaction and
any other information necessary to assess the transaction.

Member States may provide
that companies can request their shareholders to exempt them from the
requirement of subparagraph 1 to accompany the announcement of the transaction with a related party by a report
from an independent third party in case of clearly defined types of recurrent transactions with an
identified related party in a period of not longer than 12 months after
granting the exemption. Where the
related party transactions involve a shareholder, this shareholder shall be
excluded from the vote on the advance exemption.

2.           Member
States shall ensure that transactions with related parties representing more than 5% of the companies’ assets or transactions
which can have a significant impact on profits or turnover are submitted to a
vote by the shareholders in a general meeting. Where the related party
transaction involves a shareholder, this shareholder shall be excluded from
that vote. The company shall not conclude the transaction before the
shareholders’ approval of the transaction. The company may however conclude the
transaction under the condition of shareholder approval.

Member States may provide
that companies can request the advance approval by shareholders of the
transactions referred to in subparagraph 1 in case of clearly
defined types of recurrent transactions with an identified related party in a
period of not longer than 12 months after the advance approval of the
transactions. Where the related
party transactions involve a shareholder, this shareholder shall be excluded
from the vote on the advance approval.

3.           Transactions with the same related party that have been concluded during the
previous 12 months period and have not been approved by shareholders shall be
aggregated for the purposes of application of paragraph 2. If the value of these aggregated
transactions exceeds 5% of the assets, the transaction by which this threshold
is exceeded and any subsequent transactions with the same related party shall
be submitted to a shareholder vote and may only be unconditionally concluded
after shareholder approval.

4.           Member States may exclude
transactions entered into between the company and one or more members of its
group from the requirements in paragraphs 1, 2 and 3, provided that those
members of the group are wholly owned by the company.

(5) 
After Article 14, the
following Chapter IIa is inserted:

“Chapter IIa
implementing acts and penalties

Article 14a
Committee procedure

1.         The
Commission shall be assisted by the European Securities Committee established
by Commission Decision 2001/528/EC[28]. That committee shall be a committee within the
meaning of Regulation (EU) No 182/2011.

2.         Were
reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011
shall apply.

Article 14b
Penalties

Member States shall lay down the rules on penalties
applicable to infringements of the national provisions adopted pursuant to this
Directive and shall take all measures necessary to ensure that they are
implemented. The penalties provided for must be effective, proportionate and
dissuasive. Member States shall notify those provisions to the Commission by [[date for transposition at the latest and
shall notify it without delay of any subsequent amendment affecting them.”

Article 2
Amendments to
Directive No 2013/34/EU

Article 20 of Directive 2013/34/EU is amended as
follows:

(a) 
In paragraph 1, the
following point (h) is added:

“(h) the remuneration report referred to in Article
9b of Directive 2007/36/EC.”

(b) 
paragraph 3 is replaced
by the following:

“3. The statutory auditor or audit firm shall express an
opinion in accordance with the second subparagraph of Article 34(1) regarding
information prepared under points (c) and (d) of paragraph 1 of this Article
and shall check that the information referred to in points (a), (b), (e), (f),
(g) and (h) of paragraph 1 of this Article has been provided.”

(c) 
paragraph 3 is replaced
by the following:

“4. Member States may exempt undertakings referred to in
paragraph 1 which have only issued securities other than shares admitted to
trading on a regulated market, within the meaning of point (14) of Article 4(1)
of Directive 2004/39/EC, from the application of points (a), (b), (e), (f), (g)
and (h) of paragraph 1 of this Article, unless such undertakings have issued
shares which are traded in a multilateral trading facility, within the meaning
of point (15) of Article 4(1) of Directive 2004/39/EC."

Article 3
Transposition

1.           Member
States shall bring into force the laws, regulations and administrative
provisions necessary to comply with this Directive by [18 months after entry
into force] at the latest. They shall forthwith communicate to the Commission
the text of those provisions.

When Member States adopt
those provisions, they shall contain a reference to this Directive or be
accompanied by such a reference on the occasion of their official publication.
Member States shall determine how such reference is to be made.

2.           Member
States shall communicate to the Commission the text of the main provisions of
national law which they adopt in the field covered by this Directive.

Article 4
Entry into force

This Directive shall
enter into force on the twentieth day following that of its publication in the Official
Journal of the European Union.

Article 5
Addressees

This Directive is addressed to the Member States.

Done at Brussels,

For the
European Parliament                        For the Council

The President                                                 The
President

[1]               Communication from the Commission Europe 2020. A
strategy for smart, sustainable and inclusive

growth, COM(2010) 2020 final.

[2]               COM(2010) 284 final

[3]               COM(2011) 164 final

[4]               COM(2012) 740 final

[5]               Communication on Long term-financing COM(2014)...

[6]               Directive 2013/36/EU and Regulation (EU) No 575/2013.

[7]               Directive
2009/65/EC

[8]               Directive
2011/61/EU

[9]               Directive
2004/39/EC

[10]             The Forum was set up in 2004 to examine best practices
in Member States with a view to enhancing the convergence of national corporate
governance codes and providing advice to the Commission.

[11]             The Company Law Expert Group is a Commission Expert
Group which provides advice to the Commission on the preparation of Company Law
and Corporate Governance measures.

[12]             COM(2013) 150 final.

[13]             Directive 95/46/EC of the European Parliament and of
the Council of 24 October 1995 on the protection of individuals with regard to
the processing of personal data and on the free movement of such data (OJ L
281, 23.11.1995, p. 31).

[14]               OJ C , , p. .

[15]               Directive 2007/36/EC of the
European Parliament and of the Council of 11 July 2007 on the exercise of
certain rights of shareholders in listed companies (OJ L 184, 14.7.2007, p.
17).

[16]               COM/2012/0740 final.

[17]               Directive 2013/36/EU of the European Parliament and of the Council of
26 June 2013 on access to the activity of credit institutions and the
prudential supervision of credit institutions and investment firms OJ L 176, 27.6.2013, p. 338..

[18]               Directive
2013/34/EU of the European Parliament and of the
Council of 26 June 2013 on the annual financial statements, consolidated
financial statements and related reports of certain types of undertakings,
amending Directive 2006/43/EC of the European Parliament and of the Council and
repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, p.
19)

[19]               Directive 95/46/EC of the European Parliament and of
the Council of 24 October 1995 on the protection of individuals with regard to
the processing of personal data and on the free movement of such data (OJ L
281, 23.11.1995, p. 31).

[20]               Regulation (EU) No 182/2011 of the European
Parliament and of the Council of 16 February 2011 laying down the rules and
general principles concerning mechanisms for control by Member States of the
Commission’s exercise of implementing powers ( OJ L 55, 28.2.2011, p. 13).

[21]               OJ C 369, 17.12.2011, p. 14.

[22]               Directive 2002/83/EC of the European Parliament and
of the Council of 5 November 2002 concerning life assurance (OJ L 345,
19.12.2002, p. 1).

[23]             Directive 2003/41/EC of the European Parliament and of
the Council of 3 June 2003 on the activities and supervision of institutions
for occupational retirement provision (OJ L 235, 23.9.2003, p. 10).

[24]             Directive 2004/39/EC of the European Parliament and of
the Council of 21 April 2004 on markets in financial instruments amending
Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the
European Parliament and of the Council and repealing Council Directive
93/22/EEC (OJ L 145, 30.4.2004, p. 1).

[25]             Directive 2011/61/EU of the European Parliament and of
the Council of 8 June 2011 on Alternative Investment Fund Managers and amending
Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU)
No 1095/2010 (OJ L 174, 1.7.2011, p. 1).

[26]             Directive 2009/65/EC of the European Parliament and of
the Council of 13 July 2009 on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective investment in
transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32).

[27]             Regulation (EC) No 1606/2002 of
the European Parliament and of the Council of 19 July 2002 on the application
of international accounting standards (OJ L 243,
11.9.2002, p.1).

[28]             Commission Decision 2001/528/EC
of 6 June 2001 establishing the European Securities Committee (OJ L 191,
13.7.2001, p. 45).

OJ L 191,
13.7.2001, p. 45