Long Term Engagement: here goes the Italian Act of Implementation of EU Shareholder Rights Directive
| Insights
On February the 7th, the Italian Council of Ministers approved the draft (which can be downloaded here on Andersen Web-page as OCR PDF), of an Act implementing in Italy the EU Directive n. 2017/828 (“Shareholder Rights Directive”), following the previously outlined draft by the Italian Ministry of Economy and Finance. The declared purpose is fostering long term engagement in Publicly Traded Companies. The reform mainly affects the provisions of the Italian Consolidated Law on Financial Intermediation (hereinafter: CLFI), concerning the following matters:
(1) Shareholder Identification. Issuing company will have the right to identify the owner of a share amount exceeding the limit fixed by the draft, which is 0.5% of the share capital accounting for voting shares only. Currently, the CLFI art. 83-duodecies makes the lack of explicit identification rejection, a condition of the shareholder identification (opt-out method), whereas the newly drafted art. 83-duodecies repeals the mentioned opt-out regime, replacing it with a general right of the Issuer to identify the “qualified” shareholder. According to the Explanatory Report attached by the Cabinet, the decisive rationale behind this choice would be promoting long term shareholder engagement in the business. That’s the reason why, the “non-qualified” (i.e. owner of less than 0.5% of the voting share capital) shareholder shall not be prevented from accepting to be identified.
(2) Manager and Director’s Remuneration Policy. The current version of art. 123-ter CLFI provides that on an annual basis, the Policy regarding remuneration (of managers and directors) shall be approved by shareholders (through a non-binding decision). Now, the on-going changes to art. 123-ter CLFI are meant to allow the shareholders to vote on the Policy every three years. On the other hand, the draft introduces a mandatory (though non-binding) approval by the shareholders, each time the Remuneration Policy undergoes a change. Furthermore, the mandatory approval is going to be extended to the second section of the Remuneration Policy report (whereas it currently covers the first section only). Finally, the draft introduces the possibility to make an exception to the Remuneration Policy. This exceptionality has been defined by the draft itself as: “necessity in order to achieve long term goals, as well as long term sustainability of the company in general, and ensure its ability to remain on the market”.
New fines are also introduced in case of violation of laws regarding Remuneration Policy.
(3) Cost Disclosure. The draft introduces a new art. 83-novies.1, concerning charges for services provided by intermediaries. The new article provides that the levying of charges shall follow principles of non-discrimination, proportionality and transparency. It should be noted that the original EU Directive has given member States the faculty of prohibiting intermediaries from charging fees for their services. Regarding this matter, the Explanatory Report attached by the Cabinet explicitly waives the prohibition (see the Report).
(4) Proxy Advisors. A new entire section (comprising new articles 124-quater, 124-quinquies, 124-sexies, 124-septies, 124-octies, 124-novies) is going to be introduced in the CLFI, the headline of which is “Section I-ter Transparency of Institutional Investors, Asset Managers and Proxy Advisors”. Following the “comply or explain approach”, the new rules provide on one hand the duty to adopt an “Policy of Engagement” toward investee companies, and on the other hand they provide the duty (of Asset Managers and Proxy Advisors) to give a clear and reasoned explanation in case such Policy is not adopted or is not consistent with applicable law (124-quinquies). Furthermore, Proxy Advisors will have the duty to disclose to their clients any actual or potential conflicts of interests, as well as all the informations provided for in article 124-octies (on an annual basis).
Besides the CLFI, the Italian Civil Code will undergo a significant change limited to article 2391-bis, concerning the treatment and the notion of “related parties”. The new rule officially sanctions the consistency of the notion (of related party) with International Accounting Standards including any future updates. Finally, a third paragraph is added to article 2391-bis, providing the minimum content of any future by-laws by the Italian Companies and Stock Exchange Commission regarding the notion of “related party”.