EU plans voting disclosure to fix “mismatch of interests” between asset owners, fund managers

The European Commission wants improved disclosure of investors’ voting and engagement with companies to help rectify a “mismatch of interests” between asset owners and asset managers that it says has hindered shareholders’ engagement with companies.

Greater transparency is seen by the Commission as being a useful factor in awarding investment mandates.

The new corporate governance and company law action plan released today says long-term shareholders such as pension funds and life-insurers – those most likely to engage with companies – “have a rather short-term investment strategy once their funds are being managed by asset managers”.

“Short-term investment strategies focus on turning over the portfolio rather than investing for a long time and engaging on corporate governance matters with investee companies.

“This mismatch of interests between asset owners and asset managers has substantially weakened shareholder engagement.”

So it is planning to modify the existing shareholder rights directive next year to boost the disclosure of voting and engagement policies as well as investors’ voting records at company annual meetings.

“Disclosure of such information could have a positive effect on investor awareness, enable ultimate investors to optimise investment decisions, facilitate the dialogue between investors and companies, encourage shareholder engagement and could strengthen companies’ accountability to civil society,” the Commission states.

“Moreover, this information could be useful for investors before entering into a portfolio management contract.”

It’s hoped the extra transparency will shed light on whether institutional investors and their asset managers“take engagement seriously” and how they act in the best long-term interest of their beneficiaries.

The proposals are part of a 16-point plan put forward by the Commission, the executive arm of the European Union, to create a “modern legal framework for more engaged shareholders and sustainable companies”.

Also under the plan, companies need to be more transparent about their board diversity and risk management, and improve their corporate governance reporting.

“This could be useful before entering into a portfolio management contract”

There will be more transparency on pay policies and the pay of individual directors, as well as a shareholders’ right to vote on remuneration policy and the remuneration report.

As expected, proxy voting advisors are under the spotlight. The Commission has concerns about conflicts of interest, and a lack of transparency and competition in the sector, so it will look to build on an earlier European Securities Markets Authority (ESMA) paper on possible regulatory options to create a “coherent and effective operational framework” for them.

The Commission will also clarify the ‘acting in concert’ concept to make shareholder cooperation easier.

“This Action Plan on company law and corporate governance sets out the way forward: shareholders should receive additional rights, but also fully assume their responsibilities to make sure that the company remains competitive over the longer term,” said Internal Market and Services Commissioner Michel Barnier. Link