Retailers continue to be a focal point for ethical activists. As reported in the June 2007 edition of this briefing, Tesco has previously been the subject of ethical campaigning when the anti-poverty charity “War on Want” used its shareholder rights to requisition a resolution at the multi-national grocery giant’s 2007 annual general meeting.
In June 2008, Tesco was again targeted by a group of shareholders, this time a group led by Hugh Fearnley-Whittingstall, the television chef, who requisitioned a resolution to be put to Tesco’s annual generalmeeting demanding that Tesco adopt variousmeasures to ensure better living conditions for chickens purchased by it for sale.
Under section 338 of the Companies Act 2006 (the 2006 Act) which came into force on 1 October 2007, the right to requisition resolutions which was previously afforded to shareholders under section 376 of the Companies Act 1985 is essentially restated. A resolutionmay be requisitioned by shareholders holding 5%of the total voting rights in a company or by at least 100 shareholders holding shares with voting rights with an average paid-up value of £100 ormore. Both “War onWant” in 2007 and Fearnley- Whittingstall in 2008 were able to put their respective resolutions to Tesco’smembers by grouping together with at least 99 other qualifying shareholders.
Under the 2006 Act, a companymust circulate a resolution and any supporting statements (whichmay be up to 1,000 words in length) at its expense, provided that they are received before the end of the financial year preceding the annual generalmeeting at which the resolution is to be tabled. If they are not received in time, the requisitioning shareholdersmust cover the reasonable costs of circulation if so required by the company. Inmost circumstances, a company will bundle the resolution in with its notice of annual generalmeeting. Fearnley-Whittingstall’s group’s resolution was sent to Tesco before the statutory deadline which triggers the obligation on the company to circulate the resolution but after the end of the company’s financial year preceding the 2008 annual generalmeeting, the company had already sent out its notice of annual generalmeeting and refused to waive circulation costs (approximately £86,000).Mr Fearnley-Whittingstall embarked on a high-profile online campaign to raise themoney required in which he was ultimately successful.
No company in the retail sector is immune fromethical activism.Minority shareholders have significant legal rights and the recently-published Corporate Responsibility (CORE) Coalition guidance on the 2006 Act (Act Now! A Campaigner’s Guide to the Companies Act), which is intended to explain some of these rights to campaigners, is indicative of an increasing level of interest in ethical activismthrough the exercise of shareholder rights.
Although Fearnley-Whittingstall’s resolution was ultimately unsuccessful, it is worth noting that it was supported by Pensions Investment Research Consultants (CPIRC) The backing of such a prominent corporate governance adviser, whose members include pension funds and City fundmanagers, demonstrates a willingness amongst traditionally financially-motivated bodies to consider ethical issues and corporate social responsibility generally. Ethical shareholder activismlooks like a trend that is not about to go out of fashion.