Discontent with a company’s performance can lead to the shareholders taking action to change or influence the direction of the company.
Examples of shareholder activism in Australia are limited due to it being a relatively new trend, but one well known example is the public campaign in
2014 by fund managers BT Investment Management, Perpetual and Allan Gray to spill retailer David Jones’ Board of Directors by alleging that the Board
has no retail experience. The activists were somewhat successful, with 2 directors stepping down.
Although the concept of shareholder activism is still new to many Boards in Australia, it is increasing, with the number of companies targeted in Australia in 2015 up by 27% from the previous year according to some commentators.
Not all shareholder activism is negative, as it can lead to positive outcomes for the company and its shareholders. However, it can be damaging to a company’s
reputation and value.
One of the most effective ways of minimising the risk of shareholder activism is to build and manage strong relationships with shareholders, particularly shareholders who hold a large number of shares. Other ways of minimising the risk of shareholder activism are:
How to respond to shareholder activism will depend on the nature of the activity. If the activity is commenced privately, for example by the activist
approaching the Board with a proposal, then the following steps should be taken:
This course of action may still lead to the shareholder taking their proposal public and attempting to lobby other members, but it will at least allow
the Board to understand the shareholder’s position and provide time to prepare for any action.
If the activity is commenced publicly, by engaging the media or other shareholders directly without first consulting the Board, then a company’s response is even more important. The response should identify why the company opposes the action sought and should be supported by logical arguments. In the case of activity being commenced publicly, a response strategy, as suggested above, is a critical tool for any company to have ready to implement on short notice to ensure its position is communicated swiftly and clearly.
Shareholder activism is still in its infancy in Australia. However, it is increasing, and it is expected that in the near future, institutional investors will be set up for the sole purpose of engaging in shareholder activism, so it is important for companies to take steps to minimise their vulnerability and to have a plan in place for immediate execution if shareholders become active.
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