The European Commission presented in January 2006 a proposal for a directive on the exercise of voting rights by shareholders in EU companies whose shares are traded on regulated markets in the EU. My Department is today launching a formal consultation on the proposal. The consultative document will be placed in the Libraries of the House and will be available on the DTI website.

The directive aims to enhance shareholder rights and corporate governance, with the purpose of improving capital flows, lowering the cost of equity capital, and helping to make companies more competitive.

This proposal is one of the measures put forward in the Company Law Action Plan of May 2003. The exercise of shareholder rights across borders is important to improve governance, market confidence, and the opportunity for cross border investment. Our objective is to agree a directive that improves standards across the EU in such a way as to benefit both companies and investors. Our objective for this directive is to agree an approach which improves standards across the EU to the benefit of both companies and their shareholders, without imposing unnecessary costs or bureaucratic restrictions, and taking full advantage of the opportunities of modern communications technology. We believe that the right approach is to set out clear principles but to leave flexibility in the way that individual Member States and companies apply them.

The UK has the largest and leading equity market in Europe, and the most dispersed shareholder structure. Consequently, the regime of shareholder rights is well developed and shareholders in UK listed companies, whether or not they are based in the UK, face no significant barriers to exercising their rights; but we can still improve, and it is important that we play our part in improving the exercise of shareholder rights across the EU.

The process of voting at company general meetings differs widely across Member States, and is often a complex procedure. It is further complicated when shares are held across EU borders. The European Commission believes that existing EU legislation does not deal effectively with cross-border voting problems. We agree, and we support the proposal for a directive in this area.

This directive introduces measures to make sure that investors get the information they need, and that they can always exercise their rights at general meetings—even when they are not able to attend it in person, as is often the case where investors are not based in the same EU member state as the company whose shares they hold. The consultation that my Department is publishing today asks a wide range of questions about the scope of the directive and suitability of the measures proposed. We welcome views from all stakeholders with an interest in this important topic.