The global wave of shareholder activism has prompted
ASIC to revise its guidance on investor engagement. The new
proposed guidance, although generally supportive of investor
engagement, is restrictive in practice and will potentially cause
difficulties for collective action by investors in this
ASIC's existing policy on collective action has its genesis
in the battle for control of the board of Coles Myer in 1995. The
"Yannon Affair" exposed the potential for institutional
investors to influence a company's governance and the lack of
specific regulation around the issue.
Ten years on, in the context of growing activity by shareholder
activists, ASIC is revisiting its somewhat unwieldy and little used
policy on collective action by investors.
SHAREHOLDER ACTIVISM IS INFLUENCING COMPANIES TO MAKE CORPORATE
The rise of the activist interjector means institutional
investors are being forced to engage in more intense debates about
strategy with companies and activists. Since institutional support
is vital for any activist campaign, the boundaries of how the
actors should interact are extremely important for all involved and
You may not like it but as the
Economist put it, "Sometimes ill mannered, speculative and
wrong, activists are rampant. They will change American capitalism
for the better."
Hedge fund activism has emerged as an influential corporate
governance mechanism in the US, with new research suggesting
activism can bring about operational, financial and governance
reforms to a corporation with long term benefits to shareholders
Share price movements generally show that markets react
positively to involvement by activists and rely on them to identify
ways to unlock value in undervalued companies.
As shareholder activism grows, funds managers will also become
more engaged. Activists, particularly those with relatively small
stakes in a company, rely on cooperation with other shareholders in
order to effect corporate governance changes.
ASIC'S PROPOSED AMENDMENTS
ASIC's new draft Regulatory Guide outlines the types of
collective action investors may engage in without contravening the
takeover and substantial holding provisions of the Corporations
The policy reflects the inherent conflict between collective
investor engagement as an effective means of corporate governance,
and the risk of investors acquiring control over an entity
In the draft Regulatory Guide, ASIC has set out examples of
conduct where collective action is unlikely or more likely to
trigger an associate relationship or result in the acquisition of a
relevant interest prohibited under Chapter 6 of the Corporations
Act (see diagram below).
Where there is ambiguity, ASIC will consider whether the conduct
has a control purpose or effect, rather than promoting good
corporate governance. But there are some danger signs. For example,
advocating for board changes is a common tool in the shareholder
activist toolkit which under this Regulatory Guide will attract
ASIC scrutiny and needs to be approached with extreme caution.
As a general comment we think the Regulatory Guide is probably a
little restrictive in its interpretation. The UK Panel seems to be
more permissive of collective action.
Panel Practice Statement 26 suggests the UK Panel will not
normally regard shareholders voting together on a particular
resolution as objectionable. But like ASIC, the UK Panel does see
issues with shareholders who requisition or threaten to requisition
a general meeting to change the board.
Unsurprisingly given its almost non-existent use, ASIC also
proposes to revoke the Class Order and instead offer individual
relief. Relief will be offered where conduct is caught by the
takeover provisions but where it is not concerned with the
acquisition of a substantial interest in or control over the
Overall, the draft updated Regulatory Guide is a timely response
to the rise of collective action by investors and acknowledges that
investor engagement can be positive for the financial market.
ASIC is inviting interested parties to comment on the
Consultation Paper by 20 April 2015. An updated Regulatory
Guide is expected in June or July 2015.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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