Shareholder activism: A new frontier for governance professionals
Governance professionals take note! Institutional shareholders are becoming very active when it comes to governance concerns presenting themselves at shareholder meetings, be it at the annual general meeting or a requisitioned extraordinary meeting, so ignore them at your peril.
The elevated level of shareholder rights that investors are privy to the ability for five per cent of shareholders to call a meeting on a range of issues including the appointment or removal of directors, voting on the remuneration report to potentially spill a board, or putting forward shareholder resolutions, are all tools that activist shareholder campaigns can and do deploy.
As we’ve seen with BHP Billiton — offshore interests are now looking to engage shareholder activism strategies that are more commonly seen in international markets.
Previously, boards and governance professionals seeking change would negotiate behind closed doors, with directors meeting with one or a group of shareholders to devise a solution without having to go public or raising it with other investors.
Today, shareholders are more likely to agitate for change in the court of public opinion. It’s no longer just about the company’s financial performance. Increasingly, shareholders are engaging with companies around environmental and social risk exposures to their shareholdings and it’s all happening in real time, transforming sustainability considerations into mainstream investment concerns. For boards, company secretaries and investor relations professionals, this is a whole new ball game.
There is also a convergence of common interests between company secretaries and the investor relations department. Governance professionals that are not attuned to the grievances of their shareholders are heading for trouble. After all, it’s part of the company secretary’s remit to brief the board and make directors aware to any potential dissent or shortcomings or if they are not ticking governance boxes. A good company secretary has a general understanding of equity capital markets and a basic level of financial acumen as well.
The hot governance issues for shareholders in Australia continue to be non-executive director accountability, board diversity in age, skills as well as gender, senior executive remuneration, particularly annual bonus payments and their alignment to shareholder return, and sustainability-related issues that are ultimately perceived to be potential long term financial risks.
Shareholder activism is very much part of the foreseeable governance landscape in Australia and I look forward to exploring this new frontier at Governance Institute’s Corporate Governance Forum in Sydney on Wednesday, 31 May.