Governance and the Rise of the Activist Shareholder
by Cathy Quinn, Paul Foley, Silvana Schenone, Lloyd Kavanagh, Andrew Horne, Mark Forman, Neil Millar, Rodney Craig, Cameron Taylor
Published: August, 2017
Submission: August, 2017
As the tide of shareholder activism rises around the world, MinterEllisonRuddWatts discussed the trend and implications for New Zealand business at its annual Corporate Governance Symposium for directors and executives last night.
The firm’s panel of leading independent directors and chairs – comprising Tony Carter, Paul Robertshawe, Liz Coutts, Mark Cross, Rebecca Thomas and Sir Henry van der Heyden – debated key themes around governance and the rise of the activist shareholder.
In their view, and borne out by the polls at the symposium:
Shareholder activism is a good thing.
Provided it is genuinely aimed at the long-term interests of the company. As the ultimate owners of companies, shareholders most often want to understand the companies in which they invest, and to ensure that boards are accountable. Shareholders don’t owe duties to the company – directors do.
As first among equals, it is imperative that shareholders are engaged at a governance level.
The shareholder relationship with boards should be constructive. In the words of Winston Churchill:
“Criticism may not be agreeable, but it is necessary. It fulfills the same function as pain in the human body. It calls attention to an unhealthy state of things.”
Capital allocation decisions will get harder in the face of wide-spread disruption.
Shareholders ultimately provide the company’s capital, and need to understand and buy-in to the board’s strategic direction. If they don’t, activism is likely to follow especially during a time of significant disruption.
Different investors want different things.
Knowing your constituents means you are less likely to get offside with a particular group. And whenever you engage, the conversation has to be on strategyandperformance to get the mix right: better disclosure means better informed shareholders.
Disclosure levels in New Zealand are behind elsewhere in the world.
It is essential to keep engaging and communicating. Boards can limit exposure to unwanted activism by having a culture of openness and humility (which needs to be reciprocated by investors). It’s not a charm offensive: it’s about genuine two–way dialogue.
Boards need to engage beyond their shareholders to wider stakeholders.
Boards govern for the benefit of all stakeholders, to protect and maintain their social licence to operate. Focusing on community, environment and people translates into better performance – failure to do so risks destruction of shareholder wealth.
Shareholder activism is not new, but it is here to stay.
Activism has always been a feature of the New Zealand market – it’s just taken different forms through history. The increase in shareholder activism is simply an increase in shareholders meeting their responsibility.
We are fortunate in New Zealand that our many successful co-operatives have great lessons for the governance community with regards to stakeholder engagement. Our nation has the talent pool and experience to ensure our businesses benefit from constructive shareholder activism.
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