Shareholder activism works, and collaboration among small shareholders is key
Shareholder activism or divestment? This is a discussion that is going to get more and more pointed over the coming years especially as it relates to climate risk.
The recent failure of AGL’s proposed demerger is an excellent example of large shareholder activism - significant shareholder Grok Ventures (Mike Cannon-Brookes’ private investment vehicle) and industry super fund HESTA made their disapproval of the strategy known to the company’s board and publicly. They influenced other shareholders. When the company heard these views echoed by many more investors in private, the demerger vote was pulled to avoid a humiliating shareholder revolt.
This week, Kylea Tink, Member for North Sydney said, in response to concerns about the incongruity of her climate advocacy with her share portfolio, that she had bought the shares to engage in “shareholder activism.”
AFR columnist Joe Aston labeled that statement as one “of almost child-like dissemblance”. Commentary aside, Mr Aston pointed to the tactics shareholders, even very small shareholders, can use to press for the change they want to see, through writing to and meeting with company management, to attending AGMs and voting on remuneration and director nominations.
I know nothing about whether Ms Tink used any of these tactics, but I do know a bit about what is likely to make company engagement by small shareholders effective .
ACCR is essentially a ‘club’ for small shareholders who see the connection between responsible business conduct and long term returns, across their portfolio. We, along with our supporters, are a small shareholder in a bunch of major Australian companies, and a handful of companies overseas. We hold, for example, major miners, steelmakers, oil and gas companies, coal-fired utilities. We are also extremely motivated to change them.
This is a very different strategy to the one traditionally favoured by the environmental movement: divestment. Divestment is a method for funds to quickly ‘cleanse’ their portfolio of carbon, but there is little, if any, evidence that divestment has an impact on real world carbon emissions.
Divestment should be a tool of absolute last resort. Climate-aware institutional investors considering divesting should be thinking very hard about what power they are giving up. If investors most agreeable to rapid decarbonisation sell their shares, they lose their influence. Decisions will be made by those around the table.
On the other hand, there is evidence that sustained and escalating shareholder pressure can have an impact on company decision-making.
In addition to voting at and attending AGMs, there is a powerful, collective right enjoyed by minor shareholders in Australian listed companies: the right, with some legal restrictions, to put an item on the agenda (known as a ‘resolution’) for discussion and a vote of all shareholders at a company’s AGM. This power can only be exercised by 100 shareholders acting together (or shareholders with a combined 5% stake in the company). ACCR is well known among corporate Australia’s boardrooms as a frequent filer of resolutions relating to the issues that matter to us, our supporters, and to many institutional investors - like reducing greenhouse gas emissions and respecting communities in which companies operate.
Though ACCR regularly files resolutions with shareholders accounting for a miniscule proportion of the stock in trade of a company, where those resolutions are supported by major institutional investors, they can be a powerful tool for change.
But don’t just take it from me.
Analysis published by $14 trillion asset manager Blackrock in late 2020 found that “companies tend to meet the request made in a shareholder proposal if it receives significant [>30%] support, regardless of whether or not the proposal passes,” and “confirmed that the proposals on which companies acted addressed material business risks.” Most if not all of the resolutions assessed in this research were indeed proposed by minority shareholders, often working in ‘clubs’ like ACCR.
So, as implausible as it may sound, shareholder activism generated by minority shareholders - if done well and collaboratively - can deliver results, and communities of small shareholders banding together are an essential part of a well-functioning corporate democracy.
Brynn O'Brien is Executive Director of ACCR. She has 15 years’ experience as a lawyer and strategist.