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Following the publication of the ESMA Final Report and Feedback Statement on the Consultation Regarding the Role of the Proxy Advisory Industry in February 2013, a number of industry members formed a committee under the independent chairmanship of Prof. Dr. Dirk Andreas Zetzsche, LL.M. (Toronto), to develop an industry code of conduct. The "Best Practice Principles for Providers of Shareholder Voting Research & Analysis" were published in April 2014. With this report, the chair aims to make the committee's work and discussions transparent to facilitate the application of the provisions and enhance understanding of the reasoning behind their adoption. The report also aims to enhance transparency and understanding on the functioning of Providers of Shareholder Voting Research & Analysis (to which is commonly referred to as the proxy advisors) and their role in corporate governance and assist in creating a more informed discussion. The report is structured as follows: After an introduction (sub 1.), I describe the composition and work organization of the drafting committee for the Principles (sub 2.), before I explain the Committee's as well as the Chair's position on the certain provisions of the Principles (sub 3.). The report discusses, inter alia, the scope of the Principles, the Committee's general approach, the delineation of responsibility between proxy advisors, institutional investors and issuers that forms the basis of the Principles, the attitude of the industry towards local governance standards, and how Signatories should deal with conflicts of interests. A major section of the report is devoted to the communication between issuers and Providers of Shareholder Voting Research & Analysis (sub 4.). In particular I explain why a mandatory distribution of research report to issuers would put the providers' commitment vis-à-vis their clients (the investors) at risk. I further undertake to outline how the Principles may be enforced (sub 5.) and describe the next steps on the Committee's agenda (sub 6.). Three further documents issued by the Committee are annexed to the report: I. The "Best Practice Principles for Providers of Shareholder Voting Research & Analysis" discussed in the report, II. The consultation document distributed by the Committee to stakeholders in fall 2013, and III. The Feedback Statement on the Consultation.

Abstract: The key issue concerning shareholder transparency rules, and the related rules on acting in concert (Europe), or the voting group concept (U.S.) is enforcement. Rather than thinking about appropriate enforcement measures, jurisdictions such as the UK and Switzerland decided in favor of Economic Ownership Disclosure. The current debate in the U.S., on the European and national level of some European jurisdictions is moving in the same direction. This article examines a different option which is the better enforcement of existing transparency rules. In order to counter secret acquisition strategies, similar to antitrust leniency and "protected disclosure" (i.e. whistle blowing) rules, governments are best advised to assign a reward for disclosure. Under the reward model presented here, the initial stock price reaction reflects the value of the information previously hidden from the market. The first participant of a scheme who discloses the holdings of all scheme participants is to be assigned the difference between the price of the target's voting shares ex ante and ex post disclosure, calculated on the basis of the participants' joint holdings of shares (Announcement Premium). Distinguishing between schemes based on the equity value of the parties involved (Equity Strategy) – commonly referred to as wolf packs - and schemes where an acquirer seeks to create a large stake based on derivatives (Service Strategy), assigning the Announcement Premium to the first entity disclosing the scheme's holding and intentions is likely to counter Equity Strategies efficiently. The Service Strategy is countered effectively by granting the Announcement Premium to agents that act on behalf of the intermediaries (i.e. to bank employees).

This paper analyses the rules regarding the internet-based exercise of shareholder rights for public corporations incorporated in Canada, France, Germany, the U.S. (DelGCL & RMBCA), the UK and Switzerland. The traditional doctrine associates information, communication and voting with shareholder meetings. In addition, shareholder meetings regularly prompt reviews of management's activities exercised on behalf of shareholders by accountants or the judiciary. The analysis reveals that the current regimes of shareholder meetings merely provide for voting and information in the context of a digital environment, while communication and review is usually not replicated. The lack of all functions of traditional shareholder meetings is one reason of why exclusively virtual shareholder meetings have not gained widely spread acceptance across jurisdictions. Another reason is that a well-fitting design for the web-based exercise of shareholder rights does not yet exist. Thus, the paper develops an advisable design of Virtual Shareholder Meetings that replicates all for functions of traditional shareholder meetings, while it is likely to reduce shareholder apathy at the same time. It argues that enabling more frequent opportunities for voting is the logical consequence of the developments of continuous disclosure requirements and continuous buy/hold/sell-decisions by market participants. Therefore, the virtual exercise of shareholder rights should be achieved through (1) liberalizing currently existing legislative and practical barriers, and in particular, time and place restrictions on shareholder meetings; (2) re-integrating analyst and institutional investor meetings in the process of shareholder meetings, and (3) substituting for the traditional face-to-face accountability of managers to shareholders through specific electronic means. The latter involves, specifically, the use of RSS-Feed and XBRL-technologies for gathering and evaluating information, the use of the company's website as the central communication platform for management to shareholders and shareholders to shareholders, and the election of an independent shareholder rights manager (firm) by the shareholder body with procedural, technical, and organizational authority for organizing the exercise of shareholder rights. Ideally, the blueprint presented herein achieves the harmonization of voting behavior and market reactions, thereby furthering market efficiency.