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Shareholders' Rights Directive II

The Shareholders’ Rights Directive II (SRD II) aims to enhance corporate governance in EU-listed companies by promoting long-term shareholder engagement, strengthening minority shareholder rights, and increasing transparency in related party transactions (RPTs). The legislative process involved a compromise that allowed Member States flexibility in implementation, which may impact harmonization and investor protection. Key issues include the definition of material RPTs, approval mechanisms, and transparency requirements, with implications for cross-border investments and corporate governance improvements.

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LEWOYE BANTIE
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23 views10 pages

Shareholders' Rights Directive II

The Shareholders’ Rights Directive II (SRD II) aims to enhance corporate governance in EU-listed companies by promoting long-term shareholder engagement, strengthening minority shareholder rights, and increasing transparency in related party transactions (RPTs). The legislative process involved a compromise that allowed Member States flexibility in implementation, which may impact harmonization and investor protection. Key issues include the definition of material RPTs, approval mechanisms, and transparency requirements, with implications for cross-border investments and corporate governance improvements.

Uploaded by

LEWOYE BANTIE
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Business Law: Shareholders’ Rights Directive II

Regulation of Related Party Transactions

University of Salerno

December 10, 2024

University of Salerno Business Law: Shareholders’ Rights Directive II December 10, 2024 1 / 10
Overview

1 Introduction

2 Legislative Process

3 Key Issues in RPT Regulation

4 Implications

5 Conclusion

University of Salerno Business Law: Shareholders’ Rights Directive II December 10, 2024 2 / 10
Introduction

Introduction

The Shareholders’ Rights Directive II (SRD II) was adopted to


enhance corporate governance in EU-listed companies.
It aims to:
Promote long-term shareholder engagement.
Strengthen the rights of minority shareholders.
Increase transparency in related party transactions (RPTs).
Focus on balancing flexibility for businesses and protection for
investors.

University of Salerno Business Law: Shareholders’ Rights Directive II December 10, 2024 3 / 10
Legislative Process

Legislative Process

Proposal Stage:
European Commission proposed mandatory majority-of-minority
(MOM) shareholder approval for material RPTs.
Included strict transparency and fairness requirements.
Negotiation Stage:
Business community and some Member States resisted changes.
Modifications introduced to allow national discretion.
Final Directive:
Compromise text adopted in May 2017.
Member States retained significant flexibility in implementing rules.

University of Salerno Business Law: Shareholders’ Rights Directive II December 10, 2024 4 / 10
Key Issues in RPT Regulation

Investor Protection

RPTs can lead to conflicts of interest, particularly between controlling


and minority shareholders.
Issues include:
Extraction of private benefits by controlling shareholders.
Lack of transparency in intra-group transactions.
SRD II aims to mitigate these risks through enhanced oversight
mechanisms.

University of Salerno Business Law: Shareholders’ Rights Directive II December 10, 2024 5 / 10
Key Issues in RPT Regulation

Materiality Thresholds

Definition of ”material” RPTs left to Member States.


Common criteria include:
Size of the transaction relative to company assets or turnover.
Potential impact on minority shareholder interests.
Variations in thresholds across Member States can affect
harmonization.

University of Salerno Business Law: Shareholders’ Rights Directive II December 10, 2024 6 / 10
Key Issues in RPT Regulation

Approval Mechanisms

Approval mechanisms under SRD II:


Shareholder approval (MOM).
Board-level approval by independent directors.
Combination of both options.
Flexibility allows tailoring to national contexts but may dilute investor
protection.

University of Salerno Business Law: Shareholders’ Rights Directive II December 10, 2024 7 / 10
Key Issues in RPT Regulation

Transparency Requirements

Disclosure requirements aim to:


Provide real-time information on material RPTs.
Ensure fairness through independent assessments.
Member States decide:
Scope of disclosures.
Actors responsible for fairness opinions (e.g., independent third parties,
audit committees).

University of Salerno Business Law: Shareholders’ Rights Directive II December 10, 2024 8 / 10
Implications

Implications for EU Governance

Harmonization Challenges:
Variability in implementation undermines a unified capital market.
Difficulty in achieving consistent investor protection across Member
States.
Impact on Cross-Border Investments:
Uncertainty due to differing national rules may deter foreign investors.
Harmonized RPT rules could foster confidence and attract investments.
Corporate Governance Improvements:
Enhanced transparency and accountability in RPTs.
Greater involvement of shareholders in decision-making processes.

University of Salerno Business Law: Shareholders’ Rights Directive II December 10, 2024 9 / 10
Conclusion

Conclusion

SRD II represents a significant step toward improving corporate


governance in the EU.
Balancing flexibility for Member States with robust investor
protection remains a challenge.
Future directions:
Strengthen harmonization efforts.
Enhance enforcement mechanisms.
Address remaining gaps in minority shareholder protection.

University of Salerno Business Law: Shareholders’ Rights Directive II December 10, 2024 10 / 10

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