Business Law: Shareholders’ Rights Directive II
Regulation of Related Party Transactions
University of Salerno
December 10, 2024
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Overview
1 Introduction
2 Legislative Process
3 Key Issues in RPT Regulation
4 Implications
5 Conclusion
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Introduction
Introduction
The Shareholders’ Rights Directive II (SRD II) was adopted to
enhance corporate governance in EU-listed companies.
It aims to:
Promote long-term shareholder engagement.
Strengthen the rights of minority shareholders.
Increase transparency in related party transactions (RPTs).
Focus on balancing flexibility for businesses and protection for
investors.
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Legislative Process
Legislative Process
Proposal Stage:
European Commission proposed mandatory majority-of-minority
(MOM) shareholder approval for material RPTs.
Included strict transparency and fairness requirements.
Negotiation Stage:
Business community and some Member States resisted changes.
Modifications introduced to allow national discretion.
Final Directive:
Compromise text adopted in May 2017.
Member States retained significant flexibility in implementing rules.
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Key Issues in RPT Regulation
Investor Protection
RPTs can lead to conflicts of interest, particularly between controlling
and minority shareholders.
Issues include:
Extraction of private benefits by controlling shareholders.
Lack of transparency in intra-group transactions.
SRD II aims to mitigate these risks through enhanced oversight
mechanisms.
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Key Issues in RPT Regulation
Materiality Thresholds
Definition of ”material” RPTs left to Member States.
Common criteria include:
Size of the transaction relative to company assets or turnover.
Potential impact on minority shareholder interests.
Variations in thresholds across Member States can affect
harmonization.
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Key Issues in RPT Regulation
Approval Mechanisms
Approval mechanisms under SRD II:
Shareholder approval (MOM).
Board-level approval by independent directors.
Combination of both options.
Flexibility allows tailoring to national contexts but may dilute investor
protection.
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Key Issues in RPT Regulation
Transparency Requirements
Disclosure requirements aim to:
Provide real-time information on material RPTs.
Ensure fairness through independent assessments.
Member States decide:
Scope of disclosures.
Actors responsible for fairness opinions (e.g., independent third parties,
audit committees).
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Implications
Implications for EU Governance
Harmonization Challenges:
Variability in implementation undermines a unified capital market.
Difficulty in achieving consistent investor protection across Member
States.
Impact on Cross-Border Investments:
Uncertainty due to differing national rules may deter foreign investors.
Harmonized RPT rules could foster confidence and attract investments.
Corporate Governance Improvements:
Enhanced transparency and accountability in RPTs.
Greater involvement of shareholders in decision-making processes.
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Conclusion
Conclusion
SRD II represents a significant step toward improving corporate
governance in the EU.
Balancing flexibility for Member States with robust investor
protection remains a challenge.
Future directions:
Strengthen harmonization efforts.
Enhance enforcement mechanisms.
Address remaining gaps in minority shareholder protection.
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