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Is Australia ripe for shareholder activism?

By Jeremy Leibler - Partner at Arnold, Block Leibler

Shareholder activism exists in Australia but targets, particularly successful ones, are not often large. The relatively low public awareness of such activism is probably best explained by the finding 85 per cent of companies targeted by activists since 2013 had a market capitalisation of less than $A331 million.

However, the extent of activist activity over this period suggests it is emerging as a significant feature of our listed company environment.

In September, Arnold Bloch Leibler released the first detailed analysis of shareholder activism in Australia, produced for the firm by global data specialist Activist Insight. The report, Shareholder Activism in Australia, charts activist investing trends since 2013.

We commissioned the research because of what we have been hearing from our clients, primarily non-executive directors from Australian listed companies. And while the data we uncovered only tells a fraction of the story because so much of this activity takes place behind closed doors, it's an important wake up call for boards who are not alive to it.

Public demand

Since 2013, at least 50 ASX listed companies have received a public demand from investors and, over the same period, activists have won 113 board seats — around two-fifths of the total sought.

Industry participants involved in the report, including well-known local activists Mark Carnegie and Alex Waislitz, all agreed that our regulatory, policy and media environment, which puts intense pressure on corporates and directors, is therefore highly conducive to activism.

This environment is encouraging local activists to seek out foreign capital - conversations with international investors on the merits of investing in Australia are happening, and provide the strongest indication yet that we’re on the cusp of something big.

Features of Australia’s regulatory landscape that make it conducive to activism include:

• The ‘two-strikes rule’ which allows just 25 per cent of shareholders to vote down a company’s remuneration report and ultimately spill the board of directors (there is no such tool for activists in the US, for instance);

• The relatively low threshold (5 per cent of issued equity) required to call an Extraordinary General Meeting;

• Recent amendments to regulatory guidelines clarifying shareholders can communicate with each other about company performance;

• The relatively high degree of institutional shareholdings due to the large superannuation fund pool; and

• A strong media presence which can quickly affect the reputation and share price of companies.

Acceptance

Another factor in the rise of activism is the acceptance of the asset class as a tool to highlight governance and other issues within companies. There is a greater understanding and willingness between the board and activists to facilitate a mutually beneficial outcome.

This article was first published in ANZ's Blue Notes.

Comments

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