Shareholder activism is becoming more common. It is defined as when Shareholders take a more active role in steering the company rather than being passive bystanders to the initiatives and direction of the governing body.
Many Shareholders are now using activism to push companies towards more sustainable or ESG focused investing decisions. As Shareholders of the company, they are able to hold directors to a level of scrutiny that the public may not be able to.
Through holding shares in a company, Shareholders are entitled to access various mechanisms that allow them to contribute to the decision-making of the associated company. There are many key mechanisms, and depending on the company, the Shareholders class (and associated rights), and the context of the opposed issue, some mechanisms will be more appropriate than others.
Varied examples of Shareholders activism; There is a spectrum of actions possible. Which is appropriate will depend on the context.
- Proposing a resolution to be discussed and voted upon at an Annual General Meeting (AGMs). This option is outlined in the Companies Act in Schedule 1(9). You may be aware that a resolution passed at an AGM will not be binding upon Directors, however it is a significant indication to the Board about how Shareholders feel about a certain matter. However, simply proposing the resolution may have an impact, and furthermore, in accordance with normal Shareholders powers, directors can be voted in or out. If Board Members consistently show a pattern or behaviour or strategies that conflict with what Shareholders want, this could be an option Shareholders pursue.
- A formal letter to the Board outlining how they feel for example, about the direction the Board is heading in, or their thoughts about a strategy/activity/initiative of the company. Sometimes more formal measures like Shareholders resolutions can be difficult in a politically charged environment, and so more informal measures may be more appropriate.
- Meeting directly with the Board or the CEO outside of a formal AGM setting, to discuss points of contention or concern is an option. An informal meeting allows the parties to discuss issues in a less structured and formal manner. Of course the downside is that the structures of a formal meeting allow for accountability, and transparency.
- Question and discuss resolutions or proposals by the Board during AGMs. Questioning decisions and providing insights and different perspectives can also help other Shareholders to become more informed about the topic at hand.
- Rallying other Shareholders to join your cause. By forming a coalition with other Shareholders, you can increase the support and legitimacy of your concern.
- Nominate a director; Some groups may be able to increase their shareholding so they hold enough shares to nominate a director. This can help shareholders have more say in the direction of the company, as they can ensure their appointed Director shares the same vision for the future.
- Contact the media; As this approach is quite confrontational, we suggest that internal methods are attempted first. Through media attention and potentially public backing, Boards will feel more pressure to follow the will of Shareholders.
Case Study: The Church of England
The Church of England has a history of Shareholders activism, largely through engaging with Boards to encourage responsible and environmentally friendly investing. In regards to recent dealings with Exxon, the Church has put forth both Shareholders proposals and voted against current directors due to strongly disagreeing with their progress towards climate change.
To read more about Boards and Shareholders see here and here
If you are interested in your options and would like to discuss further, please contact our team.
Please note that this article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact us by phone 03 348 8480.
