ICI Supports EU Approach to Improving Shareholder Rights in Europe, August 2003

Background
The action plan explains the need to modernize the European regulatory framework for company law and corporate governance, defines key policy objectives, and includes an action plan (which prioritizes various actions over the short, medium, and long term and indicates the type of regulatory instrument that would be used). To achieve the policy objectives of strengthening shareholder rights and protection of third parties and fostering efficiency and competitiveness of businesses in the European Union, the Commission discussed a number of EU level initiatives, including:

clarifying the role played by institutional investors,
requiring an annual corporate governance statement,
introducing a framework to enhance the exercise of shareholder rights,
establishing minimum standards for the creation, composition, and the role of the nomination, remuneration, and audit committees of the board of directors,
discussing directors responsibilities as regards financial and key nonfinancial statements, and
convening a European Corporate Governance Forum that would be comprised of representatives from member states, European regulators, issuers and investors, other market participants, and academics.

ICI Position
In a recent comment letter, the Institute expresses support for the Commission's priorities in improving shareholder rights in the European Union and makes recommendations regarding certain aspects of the proposals.

The Institute notes the importance of creating a framework that enables and facilitates the ability of investors (both domestic and foreign) to exercise their rights as shareholders, protects the rights of minority investors, and dismantles national barriers or impediments that prevent the effective exercise of those rights, in order to attract global investors to a European securities market.

Specifically, the Institute supports the Commission's efforts to facilitate shareholders' access to information, to enhance shareholders' abilities to exercise their rights, and to undertake a study on the consequences of promoting the one share/one vote principle. The Institute, however, cautions the Commission against requiring issuers to conduct general meetings via electronic means and states that permitting the use of electronic medium by issuers would be the preferable approach.

The Institute also urges the Commission to solve the problems related to cross-border voting before undertaking to study the need to require disclosure of information about the role played by institutional investors. The Institute argues that obtaining the ability to exercise rights as shareholders without significant burdens is a prerequisite for Europe-wide rules to encourage institutional investors to exercise their franchise.

The Institute's letter also supports the Commission's goal of bolstering the role of independent directors in listed companies and urges the Commission to pay particular attention to developing the minimum standards of independence. The Institute notes that it is not the number of boards on which a person serves but the person's relationship with the company and/or its related persons that may impair a person's independence on the board.