“We are planning to talk to regulators in Europe to make sure that, if they review the laws, they clarify the rules for investors’ engagement. There have not just been problems in Germany, but the legislation in France, Switzerland and Italy needs to be improved. Ideally, we would like some clarification at the European level for what constitutes acting in concert,” said Hans-Christoph Hirt, director at Hermes EOS, which advises on and exercises ownership rights for pension funds.

Mr Hirt also said that different legislation in various EU states was creating a lot of problems and uncertainty for investors that want to exercise ownership rights all over Europe. The European Commission has also said that some member states have inappropriate definitions of what constitutes acting in concert.

The regulation on acting in concert concerns investors’ co-operating in taking control of a company. The proposal would have deemed investors consulting each other on corporate governance and how to vote at annual meetings to be acting in concert. If the investors owned more than 30 per cent of a company, they would have been forced to launch a takeover bid.

The changes to the German legislation were spurred by a case two years ago, when a group of activist hedge funds forced out the chief executive of Deutsche Börse to prevent its takeover of the London Stock Exchange. Together with the Dutch funds PGGM and ABP as well as Fidelity International, Hermes EOS tried to stop the law by writing public letters, participating at conferences and meeting regulators.

“We were the first to raise any concern about the proposed legislation. That also shows how little German investors actually got involved, but I’m not surprised after following the German market for some time,” said Mr Hirt.

An amended law was recently put through the final stages of the legislative procedure. Hermes EOS is upbeat about the government’s turnaround, which it believes has significantly improved the framework for active investors.

“It’s not only an improvement from the draft, but also from the situation before. It has improved accessibility and removed some uncertainties. We’re aware of some cases in the past where legal uncertainties prevented shareholders from working together about issues that would have been in their interests as long-term investors,” said Mr Hirt.

He believes that the climate in Germany for engagement is changing and that the country is gradually moving towards a better understanding of active ownership.

Printer friendly version

Email this article to a friend