In 2017 the European Union published an updated version of the Shareholder Rights Directive. Although this is an EU initiative, it will have a far broader remit because it will impact investors in EU companies as well as intermediaries elsewhere. A recent survey by Hermes found that only 3% of respondents currently meet the Directive requirements. Today Broadridge, the company that’s known for investor communications and proxy voting, announced it is using blockchain to address some of the requirements.
EU Shareholder Rights Directive
The European Commission (EC) stated that the financial crisis was the trigger for the new legislation. It went a step further saying “many shortcomings in corporate governance of listed companies contributed to the financial crisis.” It went on to note a lack of engagement and control by shareholders, which affects decision making. Additionally, it’s complicated and costly for shareholders to exercise their rights. That’s mostly because of the reliance on custodians who have control over the shares.
A side effect of these deficiencies is that directors’ pay is not justified by corporate performance.
The EC accused institutional investors such as pension funds and insurance companies as well as asset managers of having strategies that are too short term. As evidence, it cited quarterly performance reviews of asset managers, an average shareholding period of eight months and on average, fund managers turn their portfolio every 1.7 years.
As a result, the legislation imposes deadlines for several events such as intermediaries or custodians communicating meeting announcements the same day as the issuer. And responses have to be passed back to the issuer promptly. Custodians and intermediaries are required to quickly reply to requests by a share issuer for the identity of their investors.
Broadridge’s blockchain approach
Broadridge is using blockchain to share investor identities held by intermediaries or custodians with corporate share issuers. The Directive requires a 24-hour response to requests.
“The updated Shareholder Rights Directive is the most comprehensive change to European corporate governance standards and processes in many years,” said Demi Derem, General Manager, Investor Communication Solutions International. “As a neutral and independent service provider, Broadridge is focused on continually raising governance and transparency standards throughout the shareholder voting network.”
Separate from today’s announcement, Broadridge has carried out several blockchain-based proxy voting tests including at the Santander AGM and in Japan. The company is also an investor in Digital Asset.
Useful links re Shareholder Rights Directive: