Press Release

19/04/2006

Company shareholders must be treated fairly. Gay Mitchell MEP

A company’s responsibility to treat its shareholders in a fair and non-preferential manner must be at the core of best practice corporate governance according to Fine Gael MEP for Dublin Gay Mitchell. He Mitchell was the opening speaker at the European Parliamentary Financial Services Forum in Brussels today.

Gay Mitchell said: "It is quite clear that shareholder participation is an essential precondition for effective corporate governance. However, EU citizens holding shares in a listed company situated in another Member State often face severe problems when they wish to exercise the voting rights that come with these shares and sometimes even encounter obstacles that make voting particularly difficult. Nowadays, investors typically hold their shares through accounts opened with securities intermediaries, who, in turn, hold accounts with other securities intermediaries and central securities depositories in other jurisdictions. The chains of cross-border intermediaries, therefore, make not only the communication process between issuers and shareholders, but also the voting process, more difficult.

"The extent of this problem has grown significantly in recent years and continues to grow as the cross-border nature of equity investment increases, this is further stimulated by the drive towards creating integrated financial markets in Europe and beyond. The growing proportion of share ownership by foreign investors is already posing the threat of EU listed companies being owned by a passive shareholder base. Small individual cross-border shareholders who are wishing to exercise their voting rights should be enabled to do so cheaply and simply.

"The Commission Action Plan on modernising company law and enhancing corporate governance in the European Union recognised improving the rights of shareholders of companies across Member States as a priority. After two public consultations, the Commission, on 5 January 2006, proposed a Directive that aims to ensure that the timely access of shareholders to the complete information relevant to general meetings is safeguarded and the exercise of the voting right by correspondence and by proxy is facilitated. Furthermore, the proposal provides for the removal of share blocking (a practice whereby shareholders wishing to vote their proxies must deposit their shares shortly before the date of the meeting with a designated depositary. During this blocking period, shares that will be voted at the meeting cannot be sold until the meeting has taken place and the shares are returned to the clients’ custodian banks) and related practices which represent a major obstacle to voting in particular for institutional investors.

"At the core of best practice corporate governance is a company’s responsibility to treat its shareholders in a fair and non-preferential manner. Investors will commit capital to companies and countries where they have a voice in corporate decisions, their rights are protected, and effective solutions exist if their rights are violated. Investor protection mechanisms are rules that ensure minority investors have a voice in corporate decision-making and safeguards against deceitful insider deals. Evidence suggests that company value and foreign direct and portfolio investment are positively correlated with shareholder rights and good practice.

"It is important that we take the discussion in the Parliament seriously. As more wealth is generated in new areas of the EU, it is crucial that those entering the market have their rights protected and that we work continually to improve the system for those who are willing to contribute to it."

For further information please contact:
Majella O Doherty, Tel: +32 475 752253, majella.odoherty@europarl.europa.eu
Gay Mitchell, TD, MEP for Dublin, Tel: +32 2 2845228