Tackling shareholder activism

“Australian companies need to plan for the possibility of an activist attack”.

Shareholder activism: what’s behind all the noise?

Clayton Utz Insight, March 2015

Keeping activist investors at bay: how corporate boards can help

Fortune, February 2015

It is widely believed that shareholder activism is growing in Australia. A recent newsletter from law firm Clayton Utz states “Australian companies need to plan for the possibility of an activist attack”. The note considers recent tactics against Antares Energy, Karoon Gas and Molopo Energy and observes that Australia companies “can no longer be quarantined from US-style activism”.

Sue Decker, former president and CFO of Yahoo, believes that boards should proactively take steps to handle shareholder activism. In a recent article she states, “As insiders, we are in a better position to act on our fiduciary responsibility to represent the interests of shareholders than is an independent party, and we have more tools and power at our disposal to do so”.

Ms Decker outlines what public company boards can do to better align with their core responsibility to shareholders:

(i)     Facilitate direct engagement between board and shareholders. Boards typically hear about shareholder concerns indirectly and often not attributed to any specific shareholder. Ms Decker states “If a designated director or a designated third party representing the board were to reach out to shareholders from time to time, both sides would learn and benefit.”

(ii)    Establish a mechanism to attract new directors with some of the skill sets of long-term shareholders, and a board rotation mechanism to create room for new ideas and more diversity. For example, Ms Decker suggests a system where each new board member agrees to hand in their resignation every six to eight years. Some directors will be asked to serve multiple terms if they are continuing to help the company build value, but many will move on after that timeframe.

(iii)   Call on management to “analyze strategic choices as an activist would: by looking at alternatives to the strategies the CEO is recommending”. Ms Decker notes that this is not typical; more commonly, the CEO will consider options and present only one to the board. She states “The road not taken is the one the activist will surface so the board must have analyzed