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Shareholder Activism: Everything You Need To Know By Harper James

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Shareholder activism is a growing trend in the business world, raising concerns among individuals, and companies alike. Jas Bhogal, corporate law partner at law firm Harper James, sheds light on shareholder activism and provides insight on how to manage instances when such situations should arise. What is shareholder activism and why is it important? Shareholder activism involves shareholders taking extreme actions or proposing measures to advance their own agenda, often in conflict with the company's motivations and strategy. This can lead to disputes and conflicts with company management. Shareholder activism manifests in various forms, such as exercising legal rights, applying public pressure, and gathering information. Shareholder activism is significant because it demonstrates that company owners play a crucial role in shaping operational decision-making. It serves as a reminder to directors that shareholders closely monitor their actions and adherence to good corporate governance practices and compliance requirements, including areas like anti-bribery and anti-corruption.  Overall, shareholder activism can influence or transform the way companies operate, making it essential to track this trend and its trajectory. Types of shareholder activism and their effects In the United Kingdom, shareholder activism takes different forms depending on whether the company is private or public and the status of its shares. These forms include:
  1. Manipulation of shareholdings: Shareholders, typically investment funds, acquire more shares to increase voting power and influence over the company's management and potential sale.
  2. Changing board composition: Shareholders leverage their statutory voting rights to push for the removal of a director.
  3. Public announcements: Shareholders use social media, press releases, or other media platforms to voice concerns about the company's actions or proposed actions.
  4. Rallying other shareholders: A shareholder initiates a united movement to alter the company's strategy or management by issuing statements, gathering shareholder information, or utilising social media platforms.
  5. Private meetings with the board: Shareholders arrange meetings with the board to express concerns and outline necessary actions.
  6. Forcing a general meeting: Shareholders can compel a general meeting to discuss actions like director removal or vetoing strategic decisions. The company must provide notice and adhere to the requirements of the Companies Act 2006.
  7. Legal action: Shareholders have statutory options to seek court orders against the company and its directors.
All these types of shareholder actions have varying impacts on a company's operations, resulting in disruptions and speculation. They require the company to allocate time and administrative resources that could have been dedicated to regular operations. Preparing for shareholder activism Detecting signs of shareholder unrest or brewing disputes can be done by communicating with shareholders collectively during general meetings or on an informal basis. Monitoring company-related social media platforms can also reveal discontent. Directors should maintain open channels of communication with shareholders, ensuring they feel they have influence over the company's strategy and a platform to voice concerns. Transparent decision-making and explanations of rationales behind choices can help mitigate shareholder activism, especially following unusual trading activity or increased borrowing. Responding to shareholder activism Directors should see themselves as custodians of the company, acting in the best interest of shareholders, and position themselves accordingly when facing shareholder activism. Instead of instigating disputes or worsening relationships, directors should strive to facilitate company progress and engage with shareholders in a conciliatory and helpful manner. Directors need to clearly articulate the reasons behind their decisions to shareholders and, if necessary, the public, providing justifiable evidence to support their stance. When shareholders call for a general meeting or propose resolutions, directors must present a well-reasoned case against these decisions, potentially seeking assistance from auditors or financial advisers. Compliance with statutory rules outlined in the Companies Act 2006 and the company's articles of association is crucial during the meeting to prevent the participation of shareholders not entitled to vote or attend. Directors' responses to shareholder activism can significantly impact the company's reputation and the perceived trustworthiness of the board. Demonstrating a genuine desire to understand shareholder concerns while ensuring a reasonable and proportionate response is essential. This can be accomplished through news stories, social media platforms, and other means of publicity. By being proactive and responsive, companies can navigate shareholder activism more effectively and minimise its potential negative effects on their operations and reputation. 

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