Australia: 2014: the year of the shareholder activist?

Key Points:

The legal matrix of the Corporations Act and case law, if understood and negotiated, offers opportunities and presents challenges to both activist shareholders and targeted boards.

A flash in the pan, or the shape of things to come? The issue of shareholder activism is now squarely on the agenda for Australian business.

Australian institutions have historically preferred to operate behind the scenes, rather than emulating their US counterparts and engaging in public stoushes with boards and management. Late 2013 saw a major break from that tradition, when Perpetual acting with Mark Carnegie took a very public stance on the longstanding cross-holdings between Brickworks and Soul Patts.

There have already been comments that we can expect much more of this type of public activity in Australia.

In part, of course, those comments reflect the fact that we live in a world in which US business practices often become global ones. Nevertheless, it is important to bear in mind that Australia has a quite different regulatory environment from the US. That's not to say that institutional shareholder activism could not become a part of Australian business. Before it does so, however, it will have to come to grips with the relevant law.

As we detail in this two-part primer, the legal matrix of the Corporations Act and case law is a complex one, but one which, if understood and negotiated, offers opportunities and presents challenges to both activist shareholders and targeted boards.

The Two Strikes Rule

Institutions have undoubtedly been emboldened by the Two Strikes Rule.

Many critics have said that the Two Strikes Rules is otiose, since the Corporations Act already provides shareholders with the ability (through a requisitioned meeting – see below) to change company boards. However, the Two Strikes Rule has several advantages for activists, particularly institutions.

The first is that it doesn't actually require activists to do anything. Courtesy of the Corporations Act, activists are given an annual opportunity to put pressure on boards without having to go to the trouble of requisitioning a meeting.

By removing the need to requisition a meeting or draft a spill resolution, the Two Strikes Rule also means that more conservative institutions don't have to take a very public lead in attacking an incumbent board.

Of course, the real benefit of the Two Strikes Rule is that it's largely a Claytons spill motion. The low threshold for the remuneration vote ensures that shareholders can put the board under pressure to respond to shareholder concerns (or to head off them off before the AGM) without having to press the button on the blunt (and potentially value-destructive) weapon of a complete board spill.

Proxy advisers

Another factor which is encouraging shareholder activism is another import from the USA – proxy advisers. There are many valid concerns about proxy advisers and their agendas. Nevertheless, there can be little doubt that they do provide a collective focus for investor concerns.

Division of powers – The NRMA case and its aftermath

One of the major barriers to shareholder activism in Australia is the NRMA principle. In brief, this says that shareholders cannot tell directors how to run their company (unless, the company's constitution explicitly gives such power to the shareholders).

The principle was born out of one of the first modern corporate activist campaigns in Australia – the long-running battle for control of the board of the National Roads and Motorists Association. In the lead-up to the Association's 1986 AGM, a number of members requisitioned a general meeting to consider two motions: one to direct the board to appoint a named returning officer for the board elections and the other to direct that returning officer to use a particular balloting method.

The Association successfully asked the NSW Supreme Court to order that the requisitioned meeting not be held.

The Association's constitution (like that of most public companies) gave the board "the control and management of the business and affairs of the Association". The Court held that this meant that the members had no power to direct the board on how elections were to be conducted. Since the proposed resolutions could therefore have no effect, it followed that the company did not have to convene the requisitioned meeting to consider them.

That holding was not unexpected, since it was based on earlier judicial authorities. What made the NRMA case stand out was the requisitioning members' alternative argument.

Effectively conceding that they could not force the board to conduct the election in a particular way, they argued that the requisitioned meeting could still be held to consider resolutions in which the members expressed only their opinion about how the election should be held.

The Court denied them even that solace, in what constituted a new legal principle:

"[I]t is no part of the function of the members of a company in general meeting by resolution, ie. as a formal act of the company, to express an opinion as to how a power vested by the constitution of the company in some other body or person ought to be exercised by that other body or person... The members of the plaintiff no doubt have a legitimate interest in how these powers are exercised, but in their organic capacity in general meeting they have no part to play in the actual exercise of the powers."

No authority was cited for this novel proposition, which was undoubtedly welcomed by incumbent board members across Australia.

Although it may have been legally debatable, barring members from formally expressing views about how their company was run also neatly avoided a more serious issue: would directors be in breach of their duty to the company if they ignored a shareholder vote about how the company should be run?

(Interestingly, there appears to have been little debate about the fact that the Takeovers Panel's frustrating action policy appears to contradict the NRMA case. That policy requires boards to submit business decisions to general meetings and effectively requires boards to follow the decisions of those meetings, even if the boards do not consider the result to be in the company's best interests. This is however limited to decisions which would cause takeover bids to fail and it is a well-accepted principle in Australia that shareholders, not directors, should have the ability to determine whether a takeover bid should proceed.)

The NRMA principle effectively closed off one avenue for shareholder activism. However, the judge's reasons also indicated that there was an alternative route (although not one which the NRMA activists had actually taken):

"As I see the matter, the only power vested in a general meeting of members which might be available to attain the object set out in the requisitions would be the passing of a special resolution altering the Articles of Association appropriately."

This hint was then enthusiastically taken up by the next wave of shareholder activists. Instead of requisitioning meetings to direct the board to adopt a particular policy, they requisitioned meetings to amend company constitutions to incorporate the policy.

This tactic suffered from two problems.

The first was that a motion to amend a company's constitution requires a 75% vote in favour. Where the motion is being proposed by environmental or social activists and the target is a major listed company, there is little likelihood that it will come close to achieving 75% acceptance at a general meeting. The experience of GetUp at the 2012 Woolworths annual general meeting is typical: GetUp's proposal to amend Woolworths's constitution to restrict the use of poker machines in its business was supported by only 2.5% of the votes cast.

The second problem with trying to amend constitutions to achieve activist policy outcomes was section 136(3) of the Corporations Act. This says that, in addition to requiring a 75% vote, a change to a constitution can be made subject to additional requirements in the constitution itself. As shareholder activism ramped up in the 2000s, Clayton Utz drafted a section 136(3) clause for clients to consider adopting in their constitutions. A typical clause read as follows:

"A special resolution to modify or repeal the Constitution of the Company, or a provision of the Constitution of the Company must, prior to notice of the meeting of Members at which the special resolution is to be considered, being given to Members, either:

  1. have been approved by a resolution of the Board; or
  2. have been proposed by Members with at least 5% of the votes that may be cast on the resolution."

This clause was aimed at a specific mischief caused by section 249D(1), which allowed general meetings to be requisitioned by either members holding at least 5% of the votes in the company or at least 100 members. Activist groups had adopted the tactic of acquiring a small parcel of shares (usually considerably less than 5%) and then splitting it among 100 fellow-travellers in order to get the 100 members necessary to requisition a meeting.

Since activist agendas generally tended to be overwhelmingly rejected at general meetings, the purpose of our section 136(3) clause was twofold: to save the company money, by heading off the need for a pointless meeting; and to deny activists the use of a general meeting as a forum for their agenda.

Incidentally one of our clients did include the section 136(3) clause in its constitution which not surprisingly drew significant criticism from the shareholder lobbyists including the Australian Shareholders' Association.

Together, these developments greatly reduced the use of requisitioned meetings to promote social and environmental agendas.

However, in the new paradigm, where shareholder activism is business-focused and driven by significant institutional investors, section 136(3) clauses offer little protection to companies, since the current crop of shareholder activists usually have no difficulty in amassing 5% of the voting power in the company. Nevertheless, they do still face the barrier of the NRMA case. Unlike their predecessors, they have generally eschewed the constitutional change option, not only because of the high threshold for changing the constitution, but because their business objectives cannot easily be shoehorned into the form of a short amendment to the constitution.

That leaves them with the option of requisitioning a meeting to change the board, in whole or in part.

While this tactic is fairly common among smaller listed companies, it is still relatively rare among larger companies. However, when it is used, it can be difficult for a board to deal with, due to what is known as the Advance Bank case, which we'll consider in the next edition.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.