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A First In EU Law: Shareholders Don't Own Companies

Posted on May 25, 2015 at 6:10 PM

For a country fixated on whether it should stay in or out of the European Union, the UK is remarkably good at missing all sorts of exciting events taking place within it. 

Even two Bank Holidays can't account for the fact that an important vote around shareholder rights appears to have occurred without making much of an impression on the media. The lawyers have picked it up, however.


"In a strong signal about the importance of fostering sustainable and transparent companies, the European Parliament’s Committee on Legal Affairs (JURI) approved, in May, a number of revisions to the shareholder rights directive that aim to enhance the role of long-term shareholders in corporate governance. The changes include the introduction of 'say on pay' (with employees having the right to express a view) incentives to hold shares for more than two years and country-by-country reporting." 


The directive will explicitly acknowledge that shareholders do not own corporations - a first in EU law. Contrary to the popular understanding, public companies have legal personhood and are not owned by their investors. The position of shareholders is similar to that of bondholders, creditors and employees, all of whom have contractual relationships with companies, but do not own them." (my emphasis)


And further along....

"Perhaps the root challenge is that the current proposal relies almost exclusively on shareholders to drive the shift to a longer-term perspective. This myopic focus on shareholders neglects potentially valuable input from other stakeholder groups, such as employees, who have a stronger stake in the company’s competitiveness and viability." (my emphasis)

"Moreover, shareholders differ considerably in their time frames and approaches. Some shareholders are committed to holding for the long term, whilst others only hold for the short term. It is important that the former group become more engaged; however, there is a danger that the proposed directive will further empower shareholders with a short-term orientation, such as hedge funds and activist investors."

Thoughts above from Paige Morrow, head of Brussels operations at the law firm Frank Bold.

And you should read the rest of the piece, as reported in Europolitics.

Categories: Shareholders, Investors, Measurement