The days of passive investments are long gone and directors need to be ready.
The incidence of shareholder activism in Australia doubled over 2019. The lesson to be learnt? Shareholders are no longer blindly investing and are seeking more influence over governance and strategic decisions.
Off the back of bush fires and floods, it's no wonder shareholder-requisitioned resolutions are being used by Australian shareholders to fight climate change. Examples of companies that have been targeted include AGL, Westpac and BHP. The requisitions come in twos:
1. a proposal to amend the company constitution to permit advisory resolutions that is, a resolution that would enable shareholders to express an opinion or request information about the management of the company; and
2. an advisory resolution, contingent on the first resolution, which targets climate change.
As an alternative strategy, some shareholders are moving to replace existing directors so that they can have a direct influence over key management decisions of the company.
In Australia, shareholders with a collective stake of 5% or more can requisition a special meeting to consider a resolution. Once a valid requisition is received, directors must call a meeting within 21 days.
Despite none of the resolutions proposed by ASX 200 companies to amend the company constitution to permit advisory resolutions passing last year, we suggest it's only a matter of time. In Larry Fink's annual letter to CEOs this year he called climate change the defining factor in companies' long-term prospects. So what should companies do?
1. Take a look in the mirror: boards should review their current climate risks, goals and emissions practices to get ahead of the conversation.
2. Stay in the know: boards should be aware of what activist shareholders want in particular they are demanding measurable and verifiable strategies to reduce emissions.
3. Get talking: get out there and schedule regular meetings where shareholders can engage with directors.