December 2014

Lutgart Van den Berghe, Chair of our Policy Committee, spoke at the European Parliament

On 2 December, at the hearing organized by the legal affairs committee on the shareholders’ rights directive, Lutgart Van den Berghe expressed ecoDa’s opinion. ecoDa is extremely doubtful on whether the proposed remedies will bring the intended outcome. Instead ecoDa would welcome a draft directive that highlights the important monitoring role of an effective board of directors.

First and foremost, the draft directive does not take into account the great heterogeneity in shareholders’ models throughout Europe. The dispersed shareholding model is by far not the prevailing form of listed companies throughout the EU. Assuming that institutional shareholders are the most important shareholder group in the EU is not correct either. Even the institutional shareholders with a long-term approach like insurance company and pension funds have decreased their corporate share-ownership from 28% to 8% in Europe in 2012.

When it comes to the dispersed shareholding model of listed companies, the directive does not bring all the needed recipes to solve the barriers inherent to this system. The diagnosis is clearly made: passive shareholders do not perform a monitoring role as assumed, many shareholders are short term oriented and the investment chain is particularly complex.

European legislators think that they can just turn inactive shareholders into micro-managers by providing them with more duties and by enhancing transparency.

As long as the business model of institutional investors is based on transactions and not on active monitoring, it will be difficult to use regulation to foster active long-term shareholders.

Transparency is certainly important to solve the problem of complex investment chains but the main question of who is going “to monitor the monitors” remains.

For more information, see the recording of the hearing and Lutgart Van den Berghe’s powerpoint presentation as well as the other presentations made at that time.