Shareholder activism

Shareholder activism describes the tools and tactics used by shareholders to try to influence the decisions taken by the board of a company. Shareholder activism can apply to any company – large or small, public or private.

Activist shareholders are driven by different agendas, such as:

• Strategic change: Some activists look to put pressure on the Board to alter the company’s strategy.
• Board performance: Activists might be dissatisfied with the performance of the board, either individual directors or collectively.
• Executive remuneration: Listed companies can see large shareholder revolts on AGM resolutions relating to executive remuneration
• Block a transaction: Some transactions (eg fundraisings, acquisitions and disposals of a certain size, and takeovers implemented via a scheme of arrangement) require shareholder approval.
• ESG issues: This is a growing area of shareholder activism, with activist investors looking to influence corporate policy and behaviour on the environment, sustainability and governance.

There are a number of tools available to activists:

• AGM – shareholders could:
  • Vote against AGM resolutions (eg the re-election of directors).
  • Requisition resolutions.
• Requisitioning a General Meeting to table resolutions (eg to remove a director).
• Stakebuilding: The bigger an activist’s shareholding, the more tools they have at their disposal.
• Analysing the register: An activist could request a copy of the company’s register of members under section 116 of the Companies Act 2006.
• Media: Either through traditional print media or social media platforms.
• Bringing an action for unfair prejudice (where the affairs of the company are being or have been conducted in a manner that is unfairly prejudicial to the interests of members).
• Pursuing a derivative action against a director (for negligence, default, breach of duty or breach of trust) on behalf of the company.
• Bringing a claim under section 90 / 90A of the Financial Services and Markets Act 2000 for compensation for loss suffered as a result of untrue, incomplete, or misleading statements.

For a summary of shareholder rights under the Companies Act 2006, click here.

There are a range of rights which can be exercised by shareholders under the Companies Act 2006. However, in many cases, these rights can only be exercised by shareholders who are registered as members in the company’s statutory register. Shares in public companies in the UK are often held through a "chain of ownership" with the ultimate party being the custodian whose CREST account appears on the company’s register of members. This can pose difficulties when it comes to beneficial shareholders trying to exercise their rights.

For more information, click here.

We can help companies develop a strategy so that they are prepared for an activist approach. We can help:

• Structure a framework for pro-active and frequent shareholder engagement.
• Provide advice across the full spectrum of governance matters, including directors' duties, board composition and board policies and shareholder meetings.
• Horizon scan: Monitoring the market for emerging trends in shareholder activism, with a particular focus on issues relevant to the industry/sector in which your company operates.
• Identify risk areas, eg financial performance, share price, underperforming parts of the business.
• Monitor for "red flags", eg disclosures of substantial shareholdings made under DTR 5 which could reveal stakebuilding.
• Respond effectively in “live” situations – we can advise you not only on all of the legal requirements, but also on the most effective response if faced with an activist shareholder.

Although often a last resort, shareholders can pursue litigation against companies and/or their directors on a number of different bases.

It may be for example that they: file an unfair prejudice petition, seek to pursue a derivative action against directors on behalf of the company and/or for listed companies, claim under ss. 90 and 90A of FSMA in respect of certain published untrue or misleading statements.