However, the extent of activist activity over this period suggests it is emerging as a significant feature of our listed company environment.
"[Australia’s] regulatory, policy and media environment… is highly conducive to activism."
Jeremy Leibler, Partner, Arnold Bloch Leibler
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.
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.
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.
The activism not captured in our data because issues are being resolved privately is equally interesting. It highlights the way Australian boards are responding to activist demands in a context where both corporate and individual reputations are paramount.
This context, which reflects a shift from director-centric governance to shareholder-centric governance creates a real challenge for directors.
How do they resist the temptation to spend all their time and resources focusing on responding to activists and proxy advisers instead of the broader, long term strategic direction of company?
In our view, boards must take pre-emptive action to mitigate their exposure to an attack by activists. Governance activism often piggybacks on economic activism.
If boards ensure their governance is beyond challenge, their directors will be more insulated from attack. However, our regulators also have a responsibility to ensure proxy advisers are not allowed to continue dispensing what is in essence financial advice without any form of regulation.
Jeremy Leibler is Partner at Arnold Bloch Leibler