Wednesday, March 6, 2019
Shareholder Activism Essay
Can shargonholder activism truly deliver the desired change? IntroductionThe increasing awargonness of sh arholders and their take aim of importance to the modern scheme guard raised multiple questions as to the potential role which stockholders lowlife play in influencing the decision making of the coun swoping team and their willingness to engage with a broad range of stakeholders. Where sh atomic number 18holders hasten an impact to any degree, this is referred to as stockholder activism and is largely described as being the role that sh atomic number 18holders play in dominating the decisions made by management teams (Bainbridge, 1995). Whilst it is readily accepted that sh arholders own the company, whereas considerors manage the company, there has historically been a misapprehension that shareowners are simply interested in the pecuniary profits that the company produces. It is argued in this paper that this is not the case and shareholders are becoming much more i nvolved in ensuring a equilibrize approach and that organisations digest a wider awareness of issues such as corporeal social responsibility (Schacht, 1995). The draw a bead on of this paper is to consider whether or not this type of shareholder activism enkindle actually be seen to be delivering a positive change, particular propositionally in the area of somatic social responsibility. In severalise to understand at this issue and the development of CSR, shareholder activism in its entirety needs to be looked at, before then considering the legal government activity which encourages such activism and any specific cases that are relevant, before drawing conclusions on the recognise question. shareowner activism the Theoretical PerspectiveThe management of an organisation has, for a long time, accepted that the per carcassance of a business is down to them and that, if the shareholders are unhappy about the per jumpance or the returns of the business they may potentially walk away from the organisation or the position of the manager may be in jeopardy. Where shareholders take this type of feat on board, it idler be suggested that shareholder activism is in process. Broadly speaking, there are several(prenominal) key reasons why which investors may pursue the shareholder activist approach.Firstly, shareholder activism occurs in instal to procure a better return on shareholder investment secondly, to ensure that the company pursues a different corporate strategy that will ultimately improve per systemance and profit efficiency, a key example of this being the suggestion that the company should demerge thirdly, to make changes in the management team fourthly in order to pursue some form of special interest, such as a social and ethical docket (it is this agenda which will be looked at in more full stop in the paper below). Finally, shareholder activism is undertaken to influence the outcome of some form of corporate agenda that has already been p ursued (Tarrow, 1994).Shareholders have always had the weft of essentially voting with their feet, when they disapprove of the decisions of the management team. For example, they batch simply sell their shares, where traditionally the criticisms of management decisions would take location in private, with shareholders simply mournful away when they were displeased. Although the concept of shareholder activism is not necessarily new, in juvenile years, it has certainly increased in its operation and become much more prevalent.Examples of recent shareholder activism include action by an institutional investor, dub Vinke Asset Management which lobbied for changes in the HSBC strategy, or in Tesco where shareholders became involved in chartering changes in stooling conditions relating to clothes suppliers in Asia. Interestingly, shareholder activism does not wait on the size of the market, with shareholder activism being a tool that can be apply in any type of organisation. Th ose holding shares are also potentially able to act in this way and indeed this lends a considerably more diverse meaning to the notion of shareholder activism, which can be derived from a much broader range of sources (Roe, 2003).With this potential form in mind, the next step is to look at the tools that are accessible for the activist shareholder and to identify the statutory basis upon which such action can take place.Legal BasisOne of the key statutory powers which are purchasable in order to support shareholder activism is that of the Companies playact 2006 (the process). This Act lays down the legal framework which enables a shareholder to form any of their legal rights when they are pursuing an activist agenda. The precise options available to the shareholder will depend on the type of company in which they hold shares for example, there are different rights attached to public companies. For the purpose of this analysis, all potential legal rights will be looked at an d it should be borne in mind that these may not always be available, oddly to shareholders of private companies (Warneryd, 2005).In accordance with sections 303 to 305 of the Act, shareholders are able to call a general meeting. This is a strong element of the shareholder activism as it provides members with a platform in which they can make their requirements known. In the aftermath of the Shareholder Rights Directive 2009, members and groups of shareholders representing a minimum of 5% of the public companies voting rights are able to demand that the dependors call a general meeting of the company. Similarly, where the directors get hold of to convene a general meeting there are rules associated with crowing notice to the various(prenominal) shareholders. This allows shareholders the hazard to bring a platform upon which to contend their own issues.Secondly, in accordance with sections 314 317, members with a shareholding of at least 5% or shareholders or that have at leas t 100 shares with an mean(a) of at least ?100 per member are entitled to demand that the company circulates a statement to shareholders of up to 1,000 words regarding a proposed settlement or any other business that is going to take place at the meeting. This over again provides the shareholders with the training that they need in order to be potentially active. It is also noted that beneficial owners of shares can count towards the door in order to meet the 5% trigger (Belloc and Pagano, 2009).As fountainhead as the king to gain access to the meeting and information in relation to the meeting, shareholders are also entitled to be active at bottom the meeting itself. In accordance with section 338, shareholders holding a fit of 5% shares can propose a declaration, a strategy that was used by the investor efficient capital structures but they required a response as part of the 2007 AGM of Vodafone plc to pursue a specific strategy. Furthermore, section 168 provides sharehol ders with the ability to propose the removal of the directors. Arguably, this is one of the greater sanctions available to shareholders, from the perspective of the individualist directors. Where this process is being initiated, special notice of 28 days essential be given of the intention to propose this resolution and to reasonably work in line with the articles of association of the company (Filatotchev, et al 2006).Importantly, section 116 of the Act allows any shareholders to gain access to the shareholder register which then may offer them the opportunity for the shareholders to join forces in order to deal with a particular agenda, making the ability to reach the 5% thresholds somewhat easier. in that location are, however, requirements for shareholders to ensure that when they are canvassing support they are doing so for the graceful purpose.There are certain thresholds which allow shareholders to have rights, with 5% oblation the opportunity to propose a resolution, to require an independent report in the case of quoted companies, the power to require companies to publish audit concerns, again in quoted companies, and also the power to include a matter that should be considered at AGM. When the required percent of the shareholders join forces, the power becomes much more menacing to the management team, as this is the requisite amount required a specific resolution. For example, at 75%, the shareholders can require a special resolution to be passed.The regime associated with proxies can play a very grievous role when it comes to shareholder activism with the 2006 Act making changes as to the way in which proxies can operate, allowing the property to be much more effective. For example, members have an autocratic right to appoint a proxy who can attend a meeting and vote on their behalf.Another key area of shareholder activism emerged from the ability to use corporate representation, rather than using a proxy, as this allows shareholders a much greater degree of practical flexibility when they are unable to comply with proxy deadlines, or some other form of formality. collective shareholders are also able to appoint representatives by chastity of their own board resolution.Finally, it is worth noting that shareholders rights can be utilised by indirect investors. For example, under the 2006 Act, it is possible for the beneficial shareholders holding shares to enjoy information rights, i.e. to obtain information in relation to the company and in some(prenominal) cases the beneficial shareholders can count towards reaching the 5% thresholds. Although this goes beyond the desktop of the discussion here, it is worth noting that these beneficial shareholders can have a direct impact on any agenda for shareholder activism.Examples of Shareholder ActivismIn order to gain an understanding of just how effective these legal provisions can be, the situation in Tesco can be looked at. In 2007, the poverty liberality War on Want u sed the fact that it held a 5% shareholding in order to present a resolution at the 2007 AGM, with a view to ensuring a better deal for suppliers, in particular crosswise Asia. The matter did not rest there and in June 2008 Tesco was targeted once again by a group of shareholders who were headed by an individual high- profile shareholder, to look at the living conditions of chickens, prior to their purchase by Tesco for sale.The shareholders in two these cases used section 338 of the Companies Act 2006, in order to demand resolutions relating to their individual issues. Once this resolution had been demanded, the company was required to circulate information relating to the resolution, as well as any supporting statements (Aguilera, 2005). This type of shareholder activism was seen to be successful in these individual cases and provided a real forum for the shareholders with a relatively minimal percentage to change the strategy and activities of the organisation itself.Tesco is no t alone in facing these types of issues and many other large companies have also faced action from minimal shareholders, relating to specific issues such as wages for staff or supplier issues. This shows a clear distinction of the willingness of shareholders to become much more active in putting their points preliminary and being willing to take on corporations by forcing resolutions to be place and information to be provided to the broader shareholding (Hendry et al 2007).Analysis and ConclusionsThe question presented here is to consider whether or not shareholder activism can truly have an impact on organisations, when it comes to encouraging changes and improving corporate social responsibility within the organisation. By looking at the history of shareholder activism and the way in which shareholders are becoming much more willing to engage in the operation of the company, as well as examining the provisions of the 2006 Act which provide shareholders with the ability to under take these activities, it is argued here that shareholder activism is a growing and real curse to management teams of all sizes.In particular, the 2006 Act offers a considerable opportunity for shareholders to demand information and to have certain items discussed at the AGM. By exclusively providing this platform for discussion, shareholders can become more active in order to ensure their ultimate agenda is not pursued. By looking at this and using a company such as Tesco as an example, it can be seen that groups of shareholders are gaining real attention and are able to have a direct and dramatic impact on the decisions made by the management teams, particularly when faced with the ultimate sanction that shareholders can beseech the removal of those directors who fails to comply (Gillan and Starks, 2000).It is concluded here, therefore, that shareholder activism is a real and direct method whereby shareholder groups can encourage changes in the strategy of the organisation rela ting to both corporate, social responsibility and any other relevant issues.ReferencesAguilera, R.V. (2005) Corporate governance and director accountability An institutional comparative perspective British Journal of Management, 16 S39S53.Bainbridge, S. M. (1995) The politics of corporate governance, Harvard Journal of Law and domain Policy, Vol. 18 (3), pp. 671-735.Belloc, M. and Pagano, U. (2009) Co-evolution of politics and corporate governance, International Review of Law and economic science, Vol. 29 (2), pp. 106-114. Filatotchev, I., Jackson, G., Gospel, H., and Allcock, D. (2006) Key Drivers of Good Corporate organization and the Appropriateness of UK Policy Responses The surgical incision of Trade and Industry and Kings College London.Gillan, S.L. and Starks, L.T (2000) Corporate governance proposals and shareholder activism The role of institutional investors Journal of Financial Economics, 57 (2) 275- 305.Hendry, J., Sanderson, P., Barker, R. and Roberts, J. (2007) Resp onsible ownership, shareholder value and the new shareholder activism Competition & Change,11 (3) 223-240.Roe, M.J. (2003) Political Determinants of Corporate Governance Political Context, Corporate Impact Oxford University Press.Schacht, K.N. (1995) Institutional investors and shareholder activism Dealing with demanding shareholders Directorship, 21 (5) 8-12.Tarrow, S. (1994) Power in Movement Collective Action, Social Movements, and Politics in Marens, R. (2002) Inventing corporate governance The mid-century emergence of shareholder activism Journal of Business & Management, 8 (4) 365.Warneryd, K. (2005) Special issue on the politics of corporate governance Introduction, Economics of Governance, Vol. 6 (2), pp. 91-92.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment