Opinion of the European Economic and Social Committee on the Proposal for a directive of the European Parliament and of the Council on the exercise of voting rights by shareholders of companies having their registered office in a Member State and whose shares are admitted to trading on a regulated market and amending Directive 2004/109/EC COM(2005) 685 final — 2005/0265 (COD)
Date: 2006-09-13
Institutions: European Economic and Social Committee
Subjects: EU Member State, head office, official market, securities, shareholder, stock exchange, stock-exchange listing

C 318/42

EN

Official Journal of the European Union

23.12.2006

Opinion of the European Economic and Social Committee on the Proposal for a directive of the
European Parliament and of the Council on the exercise of voting rights by shareholders of compa-
nies having their registered office in a Member State and whose shares are admitted to trading on a
regulated market and amending Directive 2004/109/EC

COM(2005) 685 final — 2005/0265 (COD)

(2006/C 318/06)

On 31 January 2006 the Council decided to consult the European Economic and Social Committee, under
Article 95 of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible
for preparing the Committee's work on the subject, adopted its opinion on 20 July 2006. The rapporteur
was Mr Cassidy.

At its 429th plenary session, held on 13 and 14 September 2006 (meeting of 13 September), the European
Economic and Social Committee adopted the following opinion by 83 votes to 9 with 18 abstentions.

1. EESC conclusions and recommendations

the use of SMS. This should be encouraged but not imposed by
an EC Directive.

The EESC welcomes the Commission proposal as barriers

1.1
to cross-border voting provide distortions of the single market.

1.6
The EESC particularly welcomes the proposals for Proxy
Voting set out in Article 10. It especially welcomes the removal
of constraints on Proxy Voting whereby, in some Member State,
‘Proxies’ are restricted to relatives of the shareholders.

Share blocking,

1.2
i.e. the obligation to deposit or block
shares for a few days before a general meeting to be able to vote
still exists in several EU countries. Indeed, the practice is manda-
tory in some. It is an expensive practice, which prevents share-
holders from negotiating shares in advance of
the general
meeting. It is also considered by the majority of institutional
investors as one of the greatest obstacles to voting. Article 7 of
the proposed Directive eliminates any proposal to ‘block’ shares
by requiring them to be deposited ahead of the general meeting.
The EESC particularly welcomes this, though aware that the
number of countries where this is still permissible is limited.

1.7
The EESC supports the idea that Member States may set
a single date, with reference to a specified number of days
before the general meeting, and may provide the company shall
not be obliged to respond to questions which are submitted
after that date.

1.8
The EESC would like to see a strengthening of Article 5
concerning the supply of information to shareholders prior to a
general meeting.

1.3
The EESC believes that the Directive should acknowledge
the drive for better regulation and draws attention in particular
to paragraph 34 of the Interinstitutional Agreement on better
lawmaking of December 2003, paragraph 34 of which
encourages Member States to ‘draw up, for themselves and in
the interests of the Community, their own tables, illustrating as
far as possible, the correlation between this Directive and their
transposition measures, and to make them public’.

1.4
The EESC would like to see greater use of electronic
voting to improve transparency and to encourage shareholder
participation but believes this should be left to the companies
concerned but wishes Member States to avoid imposing obsta-
cles to wider use of electronic participation in general meetings.

Following from the preceding paragraph,

the EESC
1.5
expects a wider use of secure Internet voting perhaps including

2. The Commission's proposal

It deals with obstacles to cross-border voting for shareholders.

2.1
Due to the recent spate of scandals connected with poor
Cooperate Governance in the EU and in the USA, there is a
need to encourage shareholders to play a more active part by
voting at general meetings. The proposal under consideration is
aimed at protecting the rights not only of shareholders in the
EU but elsewhere in the world too.

2.2
This proposal aims to improve Corporate Governance in
EU listed companies by enhancing the rights shareholders are
able to exercise in relation to company meetings. In particular, it
seeks to achieve this by ensuring that shareholders owning
shares in companies registered and listed in another Member
State may vote without difficulty at company meetings.

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The draft Directive addresses the following four signifi-

2.3
cant issues:

border voting problems and increased costs, such as share-
blocking where what deters investors is the possibility that such
a requirement be present at national level.

(a) the abolition of ‘share-blocking’;

(b) sufficient advance notice for meetings (including a require-
ment that all general meetings of shareholders be called
with at least 30 days' notice);

(c) removal of legal obstacles to electronic participation;

(d) the ability to vote without attending the meeting.

This proposal

2.4
is one of the short-term measures put
forward in the communication from the Commission to the
Council and European Parliament of 21 May 2003 (1) entitled
‘Modernising Company Law and Enhancing Corporate Govern-
ance in the European Union — a Plan to Move forward’.

2.5
The Commission notes that the process of voting at
company general meetings differs widely across Member States
and is often a complex procedure.
It is further complicated
when shares are held across EU borders.

The Commission believes that existing legislation at EU
2.6
level does not address sufficiently the cross-border voting
problem. At present, under Article 17 of Directive (2004/109/
EC)
the ‘Transparency Directive’, companies are required to
make a limited amount of information available in relation to
company meetings. But the Transparency Directive does not
deal with the shareholder voting process.

Voting can be a complex process. Shares are often held
2.7
on behalf of investors by intermediaries. Where this is the case,
voting can involve a chain of events which encompasses compa-
nies, registrars, custodian banks,
investment managers, central
securities' depositories and proxy voting agencies.

3. Options

3.1
There is no guarantee that the market will react quickly
enough to improve shareholders' rights nor that appropriate
legislative change will take place in all Member States to deal
with the problem of the complexity of the voting process.

A Commission Recommendation has no legal force but
3.2
would offer flexibility for Member States to implement it into
the national systems on the basis of Commission guidelines.

A Recommendation would not guarantee the introduction of
minimum standards in key areas which are the origin of cross-

(1) COM(2003) 284 final

‘Modernising Company Law and Enhancing
Corporate Governance in the European Union — A Plan to Move
Forward’.

A Regulation would introduce a uniform treatment, irre-
3.3
spective of Member States laws.
It could also guarantee the
introduction of a tight common framework for cross-border
It would have the additional advantage of
related issues.
avoiding Member States ‘gold plating’ a directive.

The Commission believes that the costs of a regulation could be
significant since it would not be possible to offer flexibility
across
in
EU Member States.

that characterise legal

the differences

traditions

3.4
A Directive would allow for differences in Member
States' practices, preventing imbalance between different classes
of shares and shareholders and favouring basic, minimum stan-
dards.

4. Costs and benefits

4.1 Benefits

The main beneficiaries from the proposal, in the short
4.1.1
term, will be institutional
investors that currently own cross-
border shares in their portfolios. The existence of costs, asso-
ciated with obstacles to cross-border voting means that investors
are unable to become as actively engaged in the governance of
companies as they may wish.

4.1.2
Over the longer term, the proposal may encourage
smaller investors, who are currently deterred from holding
cross-border shares by the high costs associated with voting, to
increase their holdings in such shares. This will enable them to
further diversify their portfolios so reducing risk. Overall, in the
longer term, the proposal should give rise to greater liquidity in
European capital markets.

4.1.3
Currently, a number of obstacles to cross-border voting
exist. Share blocking remains a problem in some countries and
is perceived by many investors to represent a serious obstacle to
voting. In this respect it represents an obstacle to the efficient
operation of cross-border capital markets. In addition, there is
confusion among investors as the precise nature of blocking
arrangements across EU States. This too represents a serious
cost for investors, which would be reduced by the draft direc-
tive.

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Official Journal of the European Union

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There is an unfair distinction between domestic and
4.1.4
cross-border shareholders regarding the information made avail-
able to cross-border shareholders relating to a general meeting.
The Commission draft ensures that adequate and timely infor-
mation is available across all markets and should, therefore, help
to alleviate this problem.

4.1.5
The jurisprudence of the European Court of Justice
(ECJ) emphasizes the need for Member States to avoid abuse by
one class of shareholders prejudicial to other classes.

4.1.6
Proxy voting and re-registration requirements are often
costly and there is some evidence based on the Commission
Impact Assessment to suggest that the level of these costs effec-
tively discourages small funds from voting. The Commission's
proposal should simplify the process for the appointment of
proxies and clarify who can be appointed as proxies and
enhance the rights of proxies in certain countries.

4.1.7
In cases where the Chairman of the meeting holds
shareholders' Proxies, he/she should be obliged to vote them
strictly according to those shareholders' wishes.

4.2 Costs

A uniform notice period, as proposed, would introduce
4.2.1
an element of
inflexibility for those Member States, which
require only a 14 days notice period for the calling of an Extra-
ordinary General Meeting (EGM).

4.2.2
holders' written questions is essential.

The requirement to produce written answers to share-

4.2.3
Articles 5 and 7 of the draft Directive laid on 30 days
between the record date and the date of the meeting in order to
assist shareholders in being able to vote their shares.

5. Specific comments

The EESC welcomes the Commission proposal as barriers

5.1
to cross-border voting provide distortions of the single market.

5.2
As the financial sector is an important influence on the
economy and on employment growth, anything which inhibits
shareholder participation should be discouraged. The Commis-
sion proposal sets out to do that.

5.3
Currently cross-border voting is a priori more expensive
for non resident shareholders than those resident in the country

Brussels, 13 September 2006.

in which the company concerned has its shares quoted, it is an
example of market distortion.

The Committee believes

5.4
too many
constraints at present, which make proxy voting in some
Member States unduly cumbersome.

there are

that

Share blocking,

5.5
i.e. the obligation to deposit or block
shares for a few days before a general meeting to be able to vote
still exists in several EU countries. Indeed, the practice is manda-
tory in some. It is an expensive practice, which prevents share-
holders from negotiating shares up to weeks in advance of the
general meeting. It is also considered by the majority of institu-
tional investors as one of the greatest obstacles to voting.

resolutions

The EESC shares the Commission's view that the late
5.6
availability of information relevant to a general meeting or its
incompleteness or
short
noticed periods are among the major obstacles which non-resi-
dents face when seeking to exercise their rights as shareholders.
All relevant documents including auditor's reports, replies to
shareholders' questions and notices convening general meetings,
and the motions to be submitted to such meetings should be
made available electronically as well as physically.

in summary form or

Article 8 concerns participation in the general meeting
5.7
by electronic means. As technology moves so rapidly,
the
Commission is proposing that Member States ‘shall not prohibit
the participation of shareholders in the general meeting by elec-
tronic means.’

5.8
The Commission's text does not specifically deal with the
problem of ‘barer’ shares, communication with whom currently
is largely through newspaper advertisements. The EESC believes
that electronic communication is more modern, quicker and
certainly cheaper.

5.9
Article 10 clarifies the arrangements for Proxy voting
and abolishes the arrangements whereby certain companies
impose restrictions as to the person who can be granted a
Proxy.

5.10
The option of doing nothing, in other words to leave
the present situation as it is does not recommend itself to the
EESC. The obstacles make cross-border voting prohibitively
expensive for small shareholders and very costly for institutional
investors.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND