Discontent with a company's performance can lead to the
shareholders taking action to change or influence the direction of
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
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.
MINIMISING THE RISK
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
engaging in open and transparent communication with
shareholders regarding financial performance and other aspects of
the company's business;
displaying a willingness to consider shareholders' input on
the company's business;
setting clear objectives for the company so that in the event
an activist challenges the Board's position, the Board can
refer to the company's objectives and how they have been met;
preparing a response strategy to follow in the event of
HOW TO RESPOND
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:
listen to the shareholder's proposal and try to understand
their concerns and objectives;
agree with the shareholder on how future communications on the
issue will occur (to minimise the risk of the shareholder taking
their proposal public);
consider whether the proposal is something that can be
implemented and, if it can, then whether it is in the best
interests of all shareholders; and
privately communicate the Board's decision about whether or
not to implement the proposal to the shareholder. If the
Board's decision is not to implement the proposal, then the
decision should be accompanied by a well reasoned argument as to
why it is not being implemented.
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
HAVE A PLAN
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
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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