The shifting sands of shareholder activism

Jai Baker
13 May 2020

Shareholder activism
Things are moving fast.
We find ourselves navigating a new way of working, not to mention living, and we are using technology more effectively than ever before. Pushing the proverbial buttons for greater digitisation will see benefits across society, leading to a more engaged populous.
24-hour news flows and social media platforms are enabling voices to be heard. One area in particular is becoming a little more vociferous; and that is of the shareholder activist supported by shareholder groups lobbying for fairness and equality.
So, where are we seeing the noises being directed?
General meetings
Social distancing measures mean that the standard AGM is a distant memory with many companies seeking to hold their ‘shareholder’ meeting behind closed doors, subject to quorum requirements.
The physical meeting cannot be held but that should not deter the meeting from taking place with full access to all shareholders via digital means. Preservation of shareholder democracy must be maintained, lest we lose that important function of holding the board to account.
With some of the largest asset managers speaking of holding companies to account, companies should ensure their shareholders are engaged and able to challenge – the digital and web enabled solutions are available, tried and tested.
Posting physical proxy cards has been convenient for companies but it cannot remain the only voting channel. Shareholders should have choice and failure to provide it might mean that time is running out before public censure becomes somewhat of the norm.
Pressure to remove the dividend payment has taken the spotlight; both the FCA and the PRA have asked the leading retail banks to pull their dividends for the remainder of the year.
However, pressure may still come to bear to retain the dividend policy where possible, and the removal of the dividend will likely be judged against other discretionary spend a company chooses to engage in. For example, a company that chooses to remove its dividend, furlough or otherwise lay-off staff may come under the spotlight if similar action is not taken with executive pay and compensation.
Environmental social and governance
Companies will have a compelling narrative if they have decisive leadership who have taken necessary steps to protect business and stakeholders, while focusing on employee health and safety during the COVID-19 pandemic.
Those deemed to have behaved less well may find that failings in ESG areas become the focus for shareholder activists keen to expose what they see as poor leadership.
Who is making the noise?
The protagonists range from the leading asset owners right down to the many retail shareholder groups and even individual shareholders.
For example, Legal & General Investment Management warned companies it will take action if they fail to show good corporate practice during the crisis.
The UK’s largest asset manager, which has more than £1.1tn in assets, is expected to take a tough stance against directors who mistreat employees and suppliers. Whilst this approach is in line with stewardship expectations, some investors may have both stewardship and other corporate change in mind.
The campaigns of large-scale institutional shareholder activists might be on hold at the moment, like changing board directors, challenging company strategies or forcing corporate mergers/sales. However, in this climate such activists may well be building stakes and fundraising to bolster future actions.
It is likely that such activism will remain a source of risk for corporate entities and not just for those companies who may be deemed to be in distress. Shareholder activists may look at management change, governance or operational changes, and agitate for mergers or disposals.
An opportunity exists to renew shareholder engagement by embracing digital tools and improving the transparency.
Engaging with all shareholders will promote the good will of the investment community to support the company through the current storm and beyond.