What are the primary sources of laws and regulations relating to shareholder activism and engagement? Who makes and enforces them?
The primary sources of laws and regulations relating to shareholder activism and engagement include:
- the Companies Act 2014 (the Companies Act);
- the Irish Takeover Rules;
- Euronext Dublin – Rule Book II: Listing Rules (the Listing Rules);
- the Transparency (Directive 2004/109/EC) Regulations 2007 (the Transparency Regulations);
- the Market Abuse Regulation (MAR); and
- the UK Corporate Governance Code and Irish Corporate Governance Annex.
The Companies Act is the primary source of Irish company law (including provisions relevant to shareholder activism and engagement), and it applies to every Irish incorporated company. The Director of Corporate Enforcement was established pursuant to the Company Law Enforcement Act 2001 and is primarily responsible for the enforcement of company law.
The Irish Takeover Rules are made by the Irish Takeover Panel under the powers granted to it by the Takeover Panel Act 1997 and by the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006, as amended. The Rules are intended to provide a framework for an orderly market for relevant Irish public companies, and generally apply to public companies incorporated in Ireland whose shares are, or have in the previous five years been, traded on Euronext Dublin (formerly known as the Main Securities Market of the Irish Stock Exchange), Euronext Growth (formerly known as the Enterprise Securities Market), the London Stock Exchange (including AIM), the New York Stock Exchange or NASDAQ. The Irish Takeover Panel is responsible for ensuring compliance with the Irish Takeover Rules.
Companies with primary listings on Euronext Dublin are subject to continuing obligations under the Listing Rules, which regulate matters such as disclosure of information, shareholder approval of significant transactions, shareholder approval of related-party transactions, and the terms and conduct of capital raisings. The Listing Rules also apply the provision of the UK Corporate Governance Code to issuers with primary listings on Euronext Dublin on a ‘comply or explain’ basis. The Listing Rules are substantially similar to the equivalent UK rules and are promulgated and enforced by Euronext Dublin.
Companies with a secondary listing on Euronext Dublin are subject to very few continuing obligations. These are largely related to disclosure of capital changes and maintaining free float requirements.
Companies with a primary listing on Euronext Dublin are also subject to the continuing obligations of the Transparency Regulations, which set out requirements relating to the ongoing publication of certain information concerning relevant issuers. In addition, of particular interest to activists (and target companies) are the disclosure requirements concerning substantial interests in the shares of applicable companies, which can be the first indication to the market that an activist is building a position in a company. The Central Bank of Ireland is the national competent authority for the purpose of the Transparency Directive.
MAR is a European Regulation that applies to companies listed on Euronext Dublin and Euronext Growth. It principally regulates insider dealing, disclosure of inside information, dealings by directors and market conduct. As with the Transparency Directive, the Central Bank of Ireland is the national competent authority for the purposes of MAR.
The Euronext Growth Rules apply to companies listed on Euronext Growth and are very similar to the AIM Rules. The continuing obligations under the Euronext Growth Rules are more limited than those of the Listing Rules.Shareholder activism
How frequent are activist campaigns in your jurisdiction and what are the chances of success?
Shareholder activism remains relatively uncommon in Ireland as compared to many other jurisdictions, reflecting the relative size of Ireland’s domestic equity market and cultural differences in the diversity of shareholding. However, there have been recent indications of change, with a limited number of examples of shareholder activism in domestic companies in recent years. According to a report published by Lazard in January 2020, although activity is highest in the United States, Europe has continued to be a focal point of increasing activist attention, representing approximately one-quarter of activist campaigns and capital deployed globally. For example, Cevian Capital, one of Europe's largest activist shareholders, built a stake in Irish listed company CRH plc in early 2019.
Generally, activists have sought to advocate for strategic divestments, board representation and other, longer-term, strategies.
The chance of success of an activist campaign depends largely on key factors such as: (1) board composition or remuneration issues; (2) earnings underperformance as against peers; (3) valuation as against peers; and (4) the composition of the company’s existing shareholder base.
How is shareholder activism generally viewed in your jurisdiction by the legislature, regulators, institutional and retail shareholders and the general public? Are some industries more or less prone to shareholder activism? Why?
At an Irish macro and public level, there is still a general market perception that shareholder activism mainly comprises hostile corporate raiders whose primary goal is to cause disruption for short-term gain.
In individual cases, the tone of engagement will usually be set by management and the board. To date, activism has been viewed by target companies with suspicion. However, with the growing number of high-profile international and domestic examples of activism, some stakeholders have begun to see activism as an opportunity to potentially bring a well-resourced viewpoint into the boardroom through the addition of activist nominees. This approach is mirrored with stakeholders, where there is a growing awareness and acceptance of the potential benefits of activism. Indeed, there appears to be a wider recognition that activism can manifest itself in many different forms and involve many different categories of activists across any industry sector. There is also a growing appreciation of the constructive role that activists can play in effecting corporate change, including, most notably, driving shareholder value.
What are the typical characteristics of shareholder activists in your jurisdiction?
Shareholder activism has focused primarily on board composition and remuneration, including calls to separate the roles of chair and chief executive officers. Corporate governance issues, underperformance by management and inflated executive pay are generally perceived to be the main drivers for unseating board members. This was evident in the activist campaigns relating to Elan Corporation, Kingspan and Independent News & Media.
Some other changes that activists have sought in Ireland include demanding strategic change, such as the sale or spin-off of a business division or financial change in the form of dividends or share buy-backs. One notable high-profile example of an activist promoting corporate change was Orange Capital’s attempt to persuade C&C Group to divest itself of its US interests. It was reported that Orange Capital initially approached C&C privately with a presentation on their proposals before the proposal entered the public domain.
Actavis acquired Irish company Allergan in 2015. This deal came about following a long-running hostile takeover campaign related to Allergan led by Valeant Pharmaceuticals and Bill Ackman.
The most high-profile example of sociopolitical activism relates to the Irish banks that were recapitalised by the Irish government during the financial crisis. The boards of Allied Irish Banks, Bank of Ireland and Permanent TSB have all been the subject of some degree of public scrutiny and protest at their annual general meetings of shareholders given the public interest in them. Although sociopolitical activist campaigns are not yet widespread, Irish companies are increasingly aware of corporate social responsibility (CSR) issues, and the majority of Irish public companies proactively provide information on their CSR policies and initiatives to shareholders.
What are the main operational governance and sociopolitical areas that shareholder activism focuses on? Do any factors tend to attract shareholder activist attention?
Shareholder activism has focused primarily on board composition and remuneration including in particular calls to separate the roles of chairman and chief executive officers. Corporate governance issues, underperformance by management and inflated executive pay are generally perceived to be the main drivers for unseating board members. This was evident in the activist campaigns relating to Elan Corporation, Kingspan and Independent News & Media.
Irish companies are therefore scrutinising board composition and carrying out self-assessment checks more regularly.
Some other corporate changes that activists have sought in Ireland include demanding strategic change such as the sale or spin-off of a business division or financial change in the form of dividends or share buybacks. One notable high-profile example of an activist promoting corporate change was Orange Capital’s attempt to persuade C&C Group to divest itself of its US interests. It is reported that Orange Capital initially approached C&C privately with a presentation on their proposals before the proposal entered the public domain.
Actavis acquired Irish company, Allergan, in 2015. This deal came about following a long-running hostile takeover campaign related to Allergan led by Valeant Pharmaceuticals and Bill Ackman.
The most high-profile example of socio-political activism relates to the Irish banks that were recapitalised by the Irish Government during the financial crisis. The boards of AIB, Bank of Ireland and Permanent TSB have all been the subject of some degree of public scrutiny and protest at their annual general meeting (AGM) of shareholders given the public interest in the banks. While socio-political activist campaigns are not yet widespread, Irish companies are increasingly aware of corporate social responsibility (CSR) issues and the majority of Irish public companies proactively provide information on their CSR policies and initiatives to shareholders.
Shareholder activist strategiesStrategies
What common strategies do activist shareholders use to pursue their objectives?
No matter what form of activism is used, the final goal is to effect change, whether at a management, operational or strategic level. Activism in Ireland often takes the form of private informal intervention in the pursuit of corporate change. Often the most successful activist campaigns in the Irish market are fought and won in a more subtle private engagement with the board. There is certainly a view among many activists that the most successful campaigns are the ones you never read about.
There is also a clear cost benefit to engaging in a round of meetings and telephone calls rather than an expensive and protracted proxy solicitation campaign. Moreover, boardrooms are increasingly aware of the importance, in listening to the views of shareholders. There is growing awareness that maintaining dialogue between activists and boardrooms is key and that often compromise is the best form of defence to a particular activist. Usually, it is only when the board reacts negatively to a request, or a series of requests, that the situation becomes more confrontational.
Clearly an effective tool for an activist is the use of the public domain as a forum for trying to initiate change. That can take the form of PR battles, open letters or press releases but more often consists of requisitioning general meetings, proposing resolutions and, in particular, changes to board composition, or voting against key shareholder resolutions.
In contrast to the United States, litigation is not generally regarded as a key tool for activist campaigns in the Irish market given the costly and relatively unpredictable nature of litigation proceedings. One exception to this was Petroceltic International’s largest shareholder, Worldview Capital Management, which initiated legal proceedings against Petroceltic before it went into examinership.Processes and guidelines
What are the general processes and guidelines for shareholders’ proposals?
The Companies Act reserves various decisions for the approval of shareholders. An ordinary resolution is passed by a simple majority of the shareholders, and a special resolution is passed by at least 75 per cent of the shareholders. As in the United Kingdom, these thresholds are determined by reference to those shareholders who vote at the meeting and may, therefore, be passed by a far smaller percentage of the aggregate shareholder base.
Ordinary resolutions are usually required to carry out routine, less contentious, business. This includes matters such as authorising directors to allot shares and ratifying board decisions. In contrast, special resolutions are required for more significant matters, such as altering a company’s constitution, disapplying pre-emption rights or varying a company’s share capital or reducing share capital.
Shareholders holding 10 per cent of the existing voting share capital of the company may require directors to requisition a meeting of shareholders (5 per cent in the case of a company listed on a regulated market). Shareholders holding 3 per cent or more of the voting shares in an Irish company listed on a regulated market may also put items on the agenda of general meetings (including resolutions). Under Irish law, shareholders of a listed company currently have no ‘say on pay’ right to vote on the directors’ remuneration report or remuneration policy unless the right is provided for in the company's constitution. However, once the Shareholders’ Rights Directive (the Directive) (which came into force on 9 June 2017) is transposed into Irish law, shareholders will be able to vote on director remuneration where the company is listed on an EU-regulated market. First, they will be entitled to vote on the remuneration policy, and second, they will be entitled to vote on the remuneration report. The vote on the remuneration policy is likely to be binding, whereas the vote on the remuneration report will be advisory. The deadline for the transposition of the Directive into Irish law was 10 June 2019. A Statutory Instrument transposing the Directive into domestic law is expected imminently.
The vast majority of Irish companies on Euronext Dublin proposed resolutions to approve a remuneration report in 2018. Each of those companies classified the resolution as a non-binding advisory resolution only.
May shareholders nominate directors for election to the board and use the company’s proxy or shareholder circular infrastructure, at the company’s expense, to do so?
Shareholders may nominate directors for election to the board by requisitioning the directors of that company to convene an extraordinary general meeting (EGM) for that purpose or by tabling a resolution for consideration at the annual general meeting (AGM).
May shareholders call a special shareholders’ meeting? What are the requirements? May shareholders act by written consent in lieu of a meeting?
All general meetings, other than the AGM, are deemed to be an EGM. Notice must be given of each general meeting to every shareholder, director and the secretary of the company.
In respect of listed companies, shareholders holding 10 per cent or more of the company's share capital (5 per cent in the case of companies listed on a regulated market) have the power to compel the directors to convene an EGM. The requisition must state the business to be transacted at the meeting. Where an EGM has been validly requisitioned, the directors must convene it within 21 days, and the meeting must be held within two months of the requisition. If the board of directors fails to convene the EGM within 21 days, the requisitionists may convene the meeting themselves.Litigation
What are the main types of litigation shareholders in your jurisdiction may initiate against corporations and directors? May shareholders bring derivative actions on behalf of the corporation or class actions on behalf of all shareholders? Are there methods of obtaining access to company information?
Under Irish law, duties that relate to the conduct of a company’s affairs, such as directors’ duties, are generally owed to the company itself rather than to individual shareholders. Shareholders are, therefore, not generally permitted to bring an action on behalf of the company as the proper plaintiff in an action in respect of an alleged wrong done to a company is the company (ie, the Irish courts apply the rule in Foss v Harbottle).
There are a limited number of exceptions to that principle, and where the exceptions can be relied upon, shareholders may be permitted to institute a derivative action. Much like the United Kingdom, a derivative action is not an action by a shareholder in its own capacity but rather on behalf of all the other shareholders.
The ability to bring a derivative action is dependent on the company itself having a claim and obtaining the leave of the Irish courts to commence the derivative action. In making a determination, the court is likely to consider whether the action should be brought by the shareholder personally and to seek the views of the other shareholders. These requirements effectively serve as defence measures to reduce the likelihood and frequency of derivative actions.
The wrongdoing will usually have to relate to:
- an act that is illegal or ultra vires the powers of the company;
- some irregularity in the passing of a resolution;
- an act purporting to abridge or abolish an individual shareholder's rights; or
- an act that constitutes fraud against the majority, and the wrongdoers are in control of the company.
There is also an onus on the plaintiff shareholder to demonstrate that they have a realistic prospect of success in establishing that the company was entitled to the remedy and that they fell within one of the four exceptions noted above.
There is no framework in Ireland to formally facilitate class actions. The closest procedures under Irish law to class actions or multiparty lawsuits are ‘representative actions’ or ‘test cases’. A representative action is where one claimant or defendant, with the same (as opposed to similar) interest as a group of claimants or defendants in a particular action, institutes or defends proceedings on behalf of that group. Any relevant judgment or order will usually bind all claimants or defendants represented.
The more common option in Ireland for multiparty litigation is usually a test case. A test case can arise where numerous separate claims arise out of the same circumstances. For example, in 2008, the Commercial Court was faced with more than 65 separate claims related to the fraudulent investment operations run by Bernie Madoff. The Court decided to take forward two cases from individual shareholders and two by fund shareholders and stayed the remaining cases pending resolution of the four test cases.
There is no such action as a strike suit under Irish law, but minority shareholders are afforded protection under section 212 of the Companies Act. Under this provision, a shareholder may apply to the court by petition for relief where the affairs of the company are being conducted, or the powers of the directors are being exercised, in a manner that is oppressive to the shareholder or in disregard of the shareholder’s interests. If the court is of the opinion that the shareholder’s action is well founded, it may make such orders as it sees fit, including orders: (1) directing or prohibiting any act or cancelling or varying any transaction; (2) for the purchase of the shares of any shareholders by other shareholders or by the company itself; or (3) for the payment of compensation. The court may also grant interlocutory relief. The nature of conduct required for the conduct to be held to be oppressive or in disregard of the shareholder’s interests will be judged by objective standards, and there is no requirement to prove bad faith. It is also possible under section 569(f) of the Companies Act for a shareholder to apply to the court for the winding up of the company where the affairs of the company are being conducted, or the powers of the directors are being exercised, in a manner that is oppressive to the shareholder or in disregard of the shareholder’s interests.
Shareholders’ dutiesFiduciary duties
Do shareholder activists owe fiduciary duties to the company?
In contrast with directors, shareholder activists do not owe any fiduciary duties to the company.Compensation
May directors accept compensation from shareholders who appoint them?
A director may be separately remunerated by a shareholder who nominates him or her, but this is relatively unusual for an Irish listed company. In a situation where directors are also employed by a shareholder, they need to be particularly mindful of their duties as a director and the need to avoid any conflicts of interest.
Directors of Irish listed companies are remunerated for their services by the company. Best practice for listed companies under the UK Corporate Governance Code is to establish a remuneration committee to determine directors’ remuneration. The Code recommends that a non-executive director’s remuneration package should not include the granting of share options. In exceptional cases where the remuneration package does include options, advance shareholder approval must be obtained, and where these options are exercised, the non-executive director must hold the shares for at least one year after leaving the board.Mandatory bids
Are shareholders acting in concert subject to any mandatory bid requirements in your jurisdiction? When are shareholders deemed to be acting in concert?
Under the Irish Takeover Rules, a shareholder is required to make a mandatory offer (under Rule 9 in the following circumstances: (1) the shareholder, or any persons deemed to be acting in concert with it, acquires 30 per cent or more of the voting rights in the company, or (2) the shareholder's holding, or any persons deemed to be acting in concert with it, is 30 per cent or more of the voting rights in the company, but less than 50 per cent of the voting rights, and increases by more than 0.05 per cent of the aggregate percentage voting rights in that company in any 12-month period.
Any shareholder that cooperates with other shareholders needs to consider the implications of acting in concert for mandatory bid and other Irish Takeover Rules purposes. The Irish Takeover Rules state that the action of shareholders voting together on particular resolutions may not of itself lead to a mandatory offer obligation, but the Irish Takeover Panel may, in certain circumstances, hold that such joint action indicates that there is a group acting in concert, with the result that purchases by any member of the group could give rise to such an obligation. The Irish Takeover Rules do not, however, elaborate, in the same manner as the UK Takeover Code, on whether shareholders who propose a ‘board control-seeking’ resolution will be presumed to be acting in concert.
Two or more persons will be deemed to be ‘acting in concert’ in respect of a takeover or other relevant transaction, including a substantial acquisition of securities, if they cooperate on the basis of an agreement, either express or tacit and either oral or written, aimed at:
- the acquisition by any one or more of them of securities in the relevant company concerned; or
- the doing, or the procuring of the doing, of any act that will or may result in an increase in the proportion of securities in the relevant company concerned held by any one or more of them; or
- acquiring control of the relevant company concerned; or
- frustrating the successful outcome of an offer made for the purpose of the acquisition of control of the relevant company concerned.
The Irish Takeover Rules also contain a non-exhaustive list of persons who are deemed to be acting in concert (such as affiliates and directors) for the purposes of both the Irish Takeover Rules and the Substantial Acquisition Rules (SARs). However, beyond that, the question is one of fact to be considered by reference to the relevant facts of each particular case. In practice, the Irish Takeover Panel will always look at the facts of a particular situation to establish how the actions of the bidder or target (as the case may be) should be treated.Disclosure rules
Must shareholders disclose significant shareholdings? If so, when? Must such disclosure include the shareholder’s intentions?
Shareholders with interests in Irish public companies listed on an EU-regulated market, such as Euronext Dublin and the main market of the London Stock Exchange, are required to comply with the Transparency Regulations. Under the Regulations, a person is obliged to notify a listed company where the percentage of voting rights that it holds reaches, exceeds or falls below 3 per cent and each 1 per cent threshold thereafter. The notification to the company must be made as soon as possible and within two trading days for an Irish company.
Shareholders with interests in Irish public companies that are not listed on an EU-regulated market, such as Euronext Growth, AIM, the New York Stock Exchange and NASDAQ, must comply with the disclosure requirements under the Companies Act. The statutory disclosure regime requires notification of interests in, and changes to interests in, 3 per cent or more of the ‘relevant share capital’ or of any class of relevant share capital. The obligation arises where a person knowingly acquires an interest, or knowingly ceases to be interested, in shares or becomes aware that he or she has acquired an interest, or ceased to be interested, in shares. The notification must be made in writing to the company within five days of the obligation to notify arising.
In addition to the above regimes, the disclosure obligations of the Irish Takeover Rules apply where a listed company is in an offer period. During an offer period, any person who is interested in 1 per cent or more of any class of voting securities is required to disclose all further dealings in securities of that class. As with the SARs, a person’s holding is aggregated with the holdings of persons with whom it is ‘acting in concert’.
Do the disclosure requirements apply to derivative instruments, acting in concert or short positions?
Where a party is seeking to avoid triggering the Companies Act disclosure requirements, this can potentially be achieved through the use of contracts for differences (CFDs). Entry into a derivative referenced to the shares of a company is not counted for the purposes of the Companies Act disclosure requirements unless it is coupled with the acquisition of an interest in the relevant shares to which the derivative is referenced or the party entering into the derivative acquires the ability to exercise rights in relation to those shares. Accordingly, if a party enters into a CFD without acquiring such rights, it can avoid coming under an obligation to disclose, and it may therefore be possible for an activist shareholder to build a substantial stake in a company without triggering a disclosure requirement under the Companies Act.
By contrast, the disclosure requirements of the Transparency Regulations (which apply to Irish companies listed on regulated markets) require investors to disclose relevant interests in derivative instruments, regardless of whether or not they are physically settled.
For the purposes of determining whether or not a party has triggered the 1 per cent threshold under the Irish Takeover Rules, derivatives giving the party a long position in the relevant shares are counted. Once the 1 per cent threshold is reached, all dealings in derivatives (long and short) must also be disclosed in the same way as dealings in the relevant shares.Insider trading
Do insider trading rules apply to activist activity?
The Market Abuse Regulation (MAR) applies to companies listed on Euronext Dublin, Euronext Growth and other European Markets. MAR prohibits activities such as insider dealing and market manipulation, while also imposing obligations on issuers of securities or financial instruments regarding the disclosure of inside information and the maintenance of insider lists.
Company response strategiesFiduciary duties
What are the fiduciary duties of directors in the context of an activist proposal? Is there a different standard for considering an activist proposal compared to other board decisions?
Directors are not required to consider an activist proposal in a different manner to other board decisions.
The Companies Act sets out the fiduciary duties that directors owe to the company. These duties include a duty to act in good faith and in the interest of the company, to act honestly and responsibly and to avoid conflicts of interest. These duties are owed to the company and the company alone. Directors appointed by shareholders may have regard to the interests of the shareholder in the performance of their duties, but this will always be subject to the overriding fiduciary duties owed to the company.
Although directors may be very unwilling to deal with an activist shareholder, they will ultimately need to decouple their personal opinions and ask themselves: is the proposed action in the best interests of the company?Preparation
What advice do you give companies to prepare for shareholder activism? Is shareholder activism and engagement a matter of heightened concern in the boardroom?
It is more important than ever for Irish boards to be ready to deal with shareholder activism. Although activism, along with issues such as Brexit, cybersecurity, regulatory challenges and reputation risk, are occupying the minds of Irish boardrooms, the time invested by boards in considering and preparing for it varies widely.
Responding effectively to activist shareholders requires advance preparation and active investor engagement on issues of importance to investors. It is no longer sustainable for companies to ‘just say no’ to an activist campaign. Although some activist attention can be unwanted, companies and their boards should not respond dismissively to activist proposals.
Companies should focus carefully on regular shareholder communications and be prepared to respond to activist campaigns by assessing, on at least an annual basis, how susceptible the company is to an activist campaign, by whom and in what particular areas. Companies need to focus on communicating a consistent and clear corporate strategy and proactively deal with earnings shortfalls or other adverse developments. Shareholder engagement on an ongoing basis can help lay the vital groundwork for better investor relations to ensure a company has support from a wide cohort of the shareholder base.
Other advice includes monitoring the share register, adhering to corporate governance best practices, maintaining a unified board consensus and being prepared for all eventualities at the annual general meeting (AGM).Defences
What defences are available to companies to avoid being the target of shareholder activism or respond to shareholder activism?
Structural and other defences are not common in Ireland. A target board must ensure at all times that they observe their fiduciary duties to act in the best interests of the company. The Irish Takeover Rules dictate that directors of a relevant target must act only in their capacity as directors and not have regard to their personal interests. At any time during the course of an offer, or when the board has reason to believe that an offer may be imminent, the Rules (General Principle 3 and Rule 21) prohibit companies from taking any action that would or might frustrate an offer or deprive shareholders of the opportunity of considering an offer. Unless the consent of the Irish Takeover Panel is obtained (and, in some circumstances, shareholder approval), putting in place structural defences such as poison pills during the offer period is not permitted under the Rules as they could be deemed to constitute frustrating actions. Frustrating actions include issuing new shares or options, disposing or acquiring material assets, or entering into non-ordinary course contractual arrangements.
A number of Irish holding companies with listings in the United States have, however, adopted automatic shareholder rights plans that, in general terms, work by imposing a significant penalty upon any person or group that acquires 10 per cent or more of the outstanding ordinary shares of the company without the prior approval of the board of directors. However, such defences have not yet been tested with the Irish Takeover Panel or in the Irish courts.
Staggered boards are not typically a feature of Irish companies (although some US-listed companies use those structures). Directors of Irish companies can be removed by an ordinary resolution under section 146(1) of the Companies Act. The UK Corporate Governance Code also applies to companies listed on Euronext Dublin and provides that directors of relevant companies should be re-elected annually.Proxy votes
Do companies receive daily or periodic reports of proxy votes during the voting period?
The registrars of Irish companies have the ability to provide daily proxy update reports to the company ahead of any general meeting. As a large number of proxy votes tend to be made in the week leading up to the general meeting, daily updates reports are more common during this period.
Prior to proxy votes being cast, companies may engage with shareholders and, in particular, institutional shareholders or investor protection committees to lobby them to vote in favour of resolutions.
Proxy votes are typically granted in favour of the company chair and are confidential in the lead up to the general meeting.Settlements
Is it common for companies in your jurisdiction to enter into a private settlement with activists? If so, what types of arrangements are typically agreed?
It is very common for companies to engage with activist investors privately in the first instance as a means of avoiding public and more costly action at the outset. This remains the preferred course of action in Irish shareholder activist scenarios. If an activist succeeds with its campaign, it typically results in either an announcement from the company that it is considering a particular course of action, such as a strategic review, or a shareholder proposal being tabled at the next AGM.
Shareholder communication and engagementShareholder engagement
Is it common to have organised shareholder engagement efforts as a matter of course? What do outreach efforts typically entail?
Organised shareholder engagement has increased during the past few years but does tend to vary quite considerably from company to company.
Ongoing dialogue with shareholders is a core principle of the UK Corporate Governance Code (the Code). The UK Stewardship Code also promotes effective engagement from institutional shareholders in dealing with companies. However, activists usually prefer to engage on a more private, informal and amicable basis. Although companies are increasingly willing to engage with shareholders, they are not usually minded to cede to requests for board seats and other corporate changes, at least in the short term.
Are directors commonly involved in shareholder engagement efforts?
Ongoing dialogue by the board with shareholders is a core component of the Code. The main principle of this is that shareholder dialogue should be based on the mutual understanding of objectives. The Code sets out that ‘the board should keep in touch with shareholder opinion in whatever ways are most practical and efficient.’
Most shareholder engagement takes place via the chair, CEO or CFO. To ensure the board is sufficiently engaged, the board must state in the annual report the steps taken to ensure that the directors, especially the non-executive directors, have engaged with shareholders. The Code, in particular, promotes engagement by the chair and non-executive directors with shareholders. For example, the chair is expected to discuss governance and strategy issues with major shareholders.
The Code encourages active board engagement with shareholders, and the UK Stewardship Code promotes active engagement by institutional shareholders with the board.Disclosure
Must companies disclose shareholder engagement efforts or how shareholders may communicate directly with the board? Must companies avoid selective or unequal disclosure? When companies disclose shareholder engagement efforts, what form does the disclosure take?
As in the United Kingdom, an Irish-listed company must not ordinarily selectively disclose information to shareholders. Under the Market Abuse Regulation (MAR), an Irish-listed company is expected to disclose inside information to the market as soon as possible. Inside information includes specific or precise unpublished information relating to a particular issuer or particular securities that, if made public, would have a significant effect on the price of any securities.
The MAR recognises that that inside information can be legitimately disclosed to a shareholder or a potential shareholder for market sounding purposes to measure interest in a potential transaction, its size or pricing. However, such market soundings subject to prescriptive requirements in MAR, including the need to obtain the shareholder's consent and the need for the company to keep detailed records of the market soundings.
MAR provides that companies may legitimately delay disclosure of inside information to the public provided all of the following conditions are met: (1) immediate disclosure is likely to prejudice the company's legitimate interests; (2) delay of disclosure is not likely to mislead the public; and (3) the issuer is able to ensure the confidentiality of the information. Selective disclosure is also permitted to a shareholder if the shareholder owes the company a duty of confidentiality and requires the information to perform their functions.
There is, in any event, an obligation on companies to maintain insider lists for deal-specific or event-specific matters.Communication with shareholders
What are the primary rules relating to communications to obtain support from other shareholders? How do companies solicit votes from shareholders? Are there systems enabling the company to identify or facilitating direct communication with its shareholders?
Selective communications by a company to a discreet number of shareholders often fall within the meaning of inside information. Shareholders are prohibited from dealing on the basis of such information under MAR. Larger institutional shareholders usually have appropriate wall-crossing procedures in place to ensure that inside information can be received by a small number of relevant people within the organisation without restricting the dealing teams. Companies also need to be aware that where there is media speculation or market rumour regarding a company, they are required to assess whether a disclosure or announcement obligation arises.
Companies are increasingly turning to proxy solicitation and investor relations specialists to provide shareholder analysis reports, monitor trading movements and provide competitor analysis.
There are systems a company can put in place to facilitate communication with its shareholders. Information booths can be set up at annual general meetings (AGMs) dealing with questions from individual shareholders. However, the type of information to be shared at the booths should be considered carefully in advance. Similarly, a company may set up a question and answer section on its website where frequently asked questions are answered prior to an AGM.
The use of social media platforms by activists in Ireland is still not common.Access to the share register
Must companies, generally or at a shareholder’s request, provide a list of registered shareholders or a list of beneficial ownership, or submit to their shareholders information prepared by a requesting shareholder? How may this request be resisted?
Every company is required to keep an up-to-date statutory register with details of the legal owners of the shares in the company. The shareholders have a statutory right to inspect and receive copies of this register. As regards other persons, such as creditors, employees or members of the public, the register of members is open to inspection on the payment of a fee. However, this register does not include details concerning beneficial holders of shares and may therefore be of limited assistance in the context of Irish incorporated, US listed companies (the shares of which are largely held through the Depository Trust & Clearing Corporation’s nominee, Cede and Company.
Although companies do not have to recognise the beneficial holders of shares, under section 66 of the Companies Act, there is nothing precluding a company from requiring a member or a transferee of shares to furnish the company with information as to the beneficial ownership of any share when the information is reasonably required by the company. The beneficial interest may also be required to be disclosed because of a court order.
Even though beneficial interests are not being recorded in the register of members, a company may not ignore beneficial interests of which it has actual notice. These interests must be disclosed and recorded in a register, known as a register of interests. Under section 261 of the Companies Act, directors and secretaries must notify the company in writing of their interests in shares or debentures of the company. When a company receives information from a director or secretary, it must enter that information in the register of interests within three days.
To the extent that a public limited company receives information relating to its shares on the back of issuing a disclosure notice under the Companies Act, it is also required to maintain a list of such beneficial shareholders in its statutory registers.
The European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2019 (the 2019 Regulations), which came into force on 22 March 2019, operate to repeal, restate and expand the scope of the European Communities (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016. The obligation on such corporate and other legal entities to gather information and to establish and maintain a beneficial ownership register remains. However, the 2019 Regulations also require that, with effect from 22 June 2019, such entities must file their beneficial ownership details on a central beneficial ownership register. The 2019 Regulations do not apply to companies whose shares are admitted to trading on a regulated market and subject to disclosure requirements consistent with European law or equivalent international standards.
Update and trendsRecent activist campaigns
Discuss any noteworthy recent, high-profile shareholder activist campaigns in your jurisdiction. What are the current hot topics in shareholder activism and engagement?
One relatively new development has been the increased activist activity on the part of proxy advisory firms.
Institutional Shareholder Services (ISS) advises large investors on corporate governance issues. Recently, ISS recommended that the shareholders in Malin vote against the company’s remuneration arrangements. Woodford Investment Management, which holds a 23 per cent stake in the company, and the Ireland Strategic Investment Fund voted by proxy against the proposed pay and severance plans. This led to a board and management overhaul and forced the company to put a strategy in place identifying four ‘core assets’ in its portfolio of investments.
Another high-profile campaign was the acquisition by Cevian, Europe’s largest activist investor, of a stake of just less than 3 per cent in Ireland’s largest multinational, CRH. It is understood that Cevian sees CRH as being undervalued by the market, with margins trailing in comparison to competitors, and having little organic revenue growth and a strategy based on making acquisitions. Some predictions speculate that Cevian will continue to build its stake in the company with the aim of taking a seat on the board and will look for some asset sales and cost efficiencies to improve margins. Other predictions have been that given most of CRH’s earnings come from the United States, Cevian may press them to look at a partial listing of its North American unit in New York to unlock value.
Brexit is also a key concern currently impacting market volatility that could create new opportunities for activists who can benefit from the unpredictability. Steven Balet, head of corporate governance and activist engagement at FTI Consulting’s strategic communications arm, has said some activist firms were currently eyeing Ireland, which has a ‘permissive’ regulatory environment that could favour their strategies.