Activist shareholder activity has seen a global resurgence in 2022 following a lull during 2020 and 2021. Australia has also seen a rise in high-profile activist shareholder activity especially driven by climate change issues.
The statistics on shareholder activism in 2022, globally and in Australia, indicate a return to pre-pandemic levels. This trend is being driven, especially in Australia, by activists motivated by ESG concerns.
The ability of activists with small shareholdings to influence the board and management of Australian companies by means other than advocacy is quite limited, but those limits are not deterrents. Investors in Australian listed companies have few “rights” as shareholders to influence boards and management. They can vote to support or oppose the election or re-election of directors, or to remove directors (which is unusual). The most common way in which shareholders voice their dissatisfaction with the board and management is to vote against the non-binding resolution to approve the remuneration report, sometimes for reasons unrelated to remuneration. Two consecutive votes of at least 25% against the approval of the rem report (two “strikes”) triggers a resolution to hold a meeting to spill the board. This measure has been effective in tempering remuneration levels in listed companies: many of Australia’s largest listed companies have suffered “strikes” in recent years, and the total number of first strikes has continued to trend upwards, but second strikes remain rare.
Shareholders holding 5% of voting shares can request the directors of a listed company to convene a shareholders meeting, and 100 shareholders of a listed company can also propose resolutions to be considered at general meetings. Over the last few years, climate activists have routinely proposed special resolutions to amend the constitutions of listed companies to require the board to consider climate-related advisory resolutions of shareholders. Resolutions to amend constitutions have not succeeded, but some advisory resolutions (proposed subject to the constitutional amendment) have attracted significant shareholder support, even though they were not binding.
There are legal consequences for successful activism. A shareholder that can exert material influence on board decision-making, even if the shareholder does not control the company in a legal sense, could be deemed to be a shadow director, with all of the obligations of a director who has been formally appointed to the position. A single act of shareholder activism that influences a board decision would be most unlikely result in a person being a shadow director. (See, for example, Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010))
The most prominent piece of recent shareholder activism has been the successful campaign by Grok Ventures, controlling 11.28% of AGL, first to stop a proposed division of the company by way of a demerger, which required a 75% vote in favour, and second to propose and support the nomination of four candidates for election to the AGL board, all of whom were elected at the 2022 AGM with votes in favour ranging from 61.20% to 98.05%. (Those directors do not form a majority of the board.) Grok campaigned for the election of those candidates on a decarbonisation platform, and to improve the financial performance of the company.
Other recent examples of prominent shareholder activism include:
- IFM’s unsuccessful campaign against the acquisition by Atlas Arteria of a majority interest in the Chicago Skyway toll road
- Blackrock’s focus on sustainability as an investment criteria and
- the impressively-named Australian Centre for Corporate Responsibility, expanding its greenwashing proceedings against Santos in the Federal Court, and proposing ESG-related resolutions at various companies in 2022 including BHP, Rio Tinto, Origin Energy, Santos and Woodside.
The rise of activism for non-financial reasons is a significant development for Australian corporates and is particularly notable because climate activists have attracted the support of proxy advisers and institutional investors, including global fund managers and local industry superannuation funds who between them control a significant proportion of the registers of Australian companies.
