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June 2, 2023

Shareholder Rights Directive II - Key Impacts and How Northern Trust can Assist You

Read our summary of impacts arising from the European Union's Shareholder Rights Directive II, which is focused on improving the position of shareholders and supporting decision-making to increase the long-term stability of companies.

Directive (EU) 2017/828 (the Shareholder Rights Directive (SRD) II), amends the original SRD that came into effect in 2007. As an EU Directive, its scope is intended to improve corporate governance standards for Issuers registered within the European Economic Area (EEA). As a result, its application extends to securities traded on EEA-regulated markets.

SRD II extends to companies which have their registered office in a Member State and whose shares are traded on a regulated market situated or operated within a Member State. However, the custody chain for these companies may extend beyond the EU and EEA countries and hence SRD II may have an extra territorial impact on intermediaries and shareholders located outside the EU/EEA.

At its heart, the Directive is focused on improving the position of shareholders and supporting decision making aiming to increase the long-term stability of companies.

The genesis of the Directive was brought about for several reasons. Firstly, it was felt that post the financial crisis, there was a need for the strengthening of corporate governance to protect against excessive risk taking and to promote long termism. It was also acknowledged there was a need to increase monitoring  of engagement between shareholders and issuer companies.

Allowing for closer relationships between market participants would remove concerns  around sub optimal governance and performance. And finally, it has also long been recognized that the pre-existing complex chain of intermediaries used to vote shares  was acting as a barrier to effective communications between parties.

To counter these concerns and to achieve the effective exercising of shareholder rights, SRD II sets clear objectives for intermediaries requiring transmissions of information between shareholders and companies.

In order to achieve the stated objectives of the Directive, the amending articles contained within SRD II are broad in scope. These obligations impact EU companies, intermediaries, institutional investors, asset managers and proxy advisors.

For more information, download our summary.

Download PDF

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