Shareholder activism is on the rise at home and abroad; will it become the norm in share ownership?
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Investment bank Lazard believes shareholder activism is going to become more rife in the future.
Shareholder activism occurs when existing shareholders publically attempt to influence a company’s behaviour.
To meet the criteria they have to be shareholders – this excludes shortsellers and political activists who do not own shares. This also excludes private discussions that remain private – a practice common enough that firms such as Regnan exist for this purpose.
Typically, activist investors are larger institutional investors and they may hold stakes in multiple firms. One example is Sir Ron Brierley and his firm Mercantile Investment Company (ASX:MVT) — until his retirement last year.
In 2014, the Abbott government changed the Corporations Act to stipulate investors needed a 5 per cent stake to call a requisitioning meeting in their own right.
This makes it hard, but not impossible, for smaller retail investors to do this.
While Lazard’s report did not mention Australia, Stockhead found that the incidence of shareholder activism on the ASX doubled in 2019.
Stockhead also found the most common demands were for the removal of a director and/or obtaining a board seat, each accounting for half of these incidents at least in part.
Additionally, unsuccessful attempts were pipped by the fully successful. But if you add partially successful attempts to the tally, the latter overtakes the former.
One ongoing case is online market place Redbubble (ASX:RBL), which is being targeted by Emancipation Capital. A letter was served to the board just two days after Christmas expressing concerns about Redbubble’s performance and calling for a strategic review and someone to takeover the company.
This came only two weeks after a solid few months of share price growth came to a halt with a negative trading update.
Meanwhile, among global large caps (all stocks globally with market capitalisations above US$500m), 187 companies were targeted.
While this was down on 2018’s number, Lazard noted a record number of investors launched campaigns, including 43 “first timers” with no prior activism activities. This was nearly double the number from two years ago.
Japan became the most targeted jurisdiction (other than America) for the first time.
Lazard shareholder advisory practice managing director Dennis Berman said investor activism was on the rise to the extent that the very nature of share ownership was changing.
“This is a somewhat remarkable growth rate, and lays bare some of my earlier observations that the very nature of share ownership is changing,” he said on LinkedIn.
“There is grist to the idea that to be an actual human selecting actual stocks in the year 2020 pushes owners to be an ‘activist’.
“It’s even interesting to think that over the next decade the term ‘activist’ will disappear, and will be subsumed into the generic term ‘shareholder.’
“It calls to mind great retronyms such as horseless carriage, film camera and ground warfare.”