How to Benefit From the Implementation of the Shareholder Rights Directive

Nicolas Meunier, Head of Advisory & IR Solutions at Euronext Corporate Services, chaired a webinar about the implementation of the Shareholder Rights Directive (SRD II) in Denmark and Norway. He started by summarising the aims of SRD II, which are to encourage long-term shareholder engagement, increase transparency and improve corporate governance. The webinar’s objective was to look into how the directive works in practice for issuers in Denmark and Norway and how they can benefit from it.

Background of SRD II

SRD II updates the original SRD, which came into force during the financial crisis of the late 2000s. It was implemented in Denmark in two stages – in 2019 and 2020. Flemming Merring, Senior Product Manager, Issuance Products at VP Securities, reiterated that “transparency, engagement and active ownership” are the keywords for the revised law. 

The new rules ensure transparency over costs, related-party transactions and the actions of proxy advisors and asset managers. Flemming also says this presents an opportunity for better engagement between issuers and institutional investors and asset managers. He states that, although issuers in Denmark had always been able to identify their shareholders with a 5% or greater stake under flagging rules, SRD II means they can now find out about investors with smaller holdings and even benefit from discovering who has invested on a particular day. 

Flemming Merring says that SRD II benefits investors, particularly private investors, because they have greater access to the transmission of information about meetings, for example. It also makes it easier for both institutional and retail investors to cast votes overseas without incurring prohibitive costs. 

Identification of shareholders in Denmark

Due to the large amount of overseas investment in Danish issuers, Flemming says that SRD II brings new opportunities for shareholder identification. Whereas previously, they might only have been able to see the custody chain, identifying the custodians but not necessarily the shareholders, SRD II allows them to contact intermediaries and request they identify those invested. This helps issuers understand who the decision makers are within their shareholding. 

Requests pass down the chain until all shareholders above the threshold for disclosure are identified. Issuers can carry out as many searches as possible to identify their shareholding, said Flemming, but they must remember that there is a cost implication because the intermediaries will have to charge for their work. 

This requires a structure that works across borders and, through collaboration, can create a system where, at some point in the future, shareholder identification can take place in an automated manner without human intervention. 

SRD II in Norway

Alexander Wathne, Product Manager, Issuer Services at Euronext VPS stated that the implementation of SRD II in Norway was broadly similar to Denmark. He talked about the central tenets of shareholder identification, the transmission of information and the facilitation of shareholder rights. 

Some of the rules, however, apply to some unlisted companies as well as all listed companies, as in Denmark and other nations. 

Another element of Norway’s implementation is that owners of shares in nominee accounts will no longer need to be directly registered in the CSD register to vote in the AGM. 

Alexander said that shareholder identification worked in the same way as in Denmark. This will help Norwegian companies as, even though they already had shareholder identification rights, their ability to do so was limited before the introduction of SRD II.