Hedge Fund Activism and the Revision of the Shareholder Rights Directive

This paper looks at shareholder activism from the perspective of the revision of the EU Shareholder Rights Directive, which was approved by the European Parliament on 14 March 2017. The main findings are as follows.

First, the effective engagement of institutional investors in corporate governance must rely on hedge fund activism. Whether the latter is desirable depends on the characteristics of the particular company.

Second, the Shareholder Rights Directive includes a number of rules that curb, albeit marginally, hedge fund activism for want of a longer-term engagement by institutional investors that cannot stand on its own feet. EU law missed the opportunity to let individual companies choose the efficient regime regarding shareholder activism, and alter it over time.

Third, the rather prescriptive stance of the Shareholder Rights Directive on shareholder activism seems based on the broader macroeconomic concerns underlying the EU project of Capital Markets Union. Although promoting long-termism in the asset management industry makes sense for the purpose of financial stability, this may undermine the efficiency of corporate governance. The latter is arguably more important than capital market regulation to support innovation and economic growth.