Shareholder activism is a controversial process by which shareholders exert their influence by generating pressure on the management of the company. The growth in activism has been spearheaded over the past decade primarily by groups falling into two categories: those whose motives are purely profit driven and those whose motives are to improve a company’s social and corporate responsibility.

Tools available for the activist shareholder in Singapore

The right of a shareholder to requisition/call for a general meeting under the Companies Act

For companies incorporated in Singapore, shareholders have rights under the Companies Act of Singapore (CA) and other legislation, as well as under the common law and usually also the company’s memorandum and articles of association (M&A).

  1. The CA provides for two or more members holding not less than ten percent of the total number of issued shares of the company (excluding treasury shares) or such lesser number as is provided in the M&A to call a meeting of the company.
  2. The directors must as a result convene a meeting as soon as practicable within two months after receipt of the requisition.
  3. If the directors do not convene the meeting within 21 days after receipt of the requisition, the requisitionists may convene a meeting themselves. The meeting must be held within three months of the date of the deposit of the requisition. Any reasonable expenses incurred by the requisitionists in calling the meeting are then to be paid by the company.
  4. A meeting, other than a meeting for the passing of a special resolution which requires at least 21 days’ notice, will require not less than 14 days’ notice or such longer period as is provided in the M&A.
  5. The requisition of a meeting is usually the preferred option as members seldom have the means to call a meeting themselves especially in the context of a listed company.

Removing a director

  1. In a private company it is possible for the articles of association to expressly state that a director be irremovable. The removal of directors is governed by a company’s M&A.
  2. In a public company however, it is not possible to have irremovable directors. Section 152(1) of the CA provides that a public company may always remove a director by ordinary resolution, notwithstanding anything contained in the company’s memorandum or articles or in any agreement that may exist with the director.
  3. The person proposing the resolution must give the company special notice of their intention to move the resolution at least 28 days before the meeting.

The right to inspect the register of members

  1. A shareholder may request a copy of a company’s register of members to identify the company’s shareholders.
  2. Section 192(3) of the CA states that any member may request the company to furnish a copy of the register but only so far as it relates to names, addresses, number of shares held and amounts paid on shares. If the copy is not furnished by the company, the company and every officer of the company who is in default shall be liable to pay a fine of up to S$400.

The right to use a proxy

  1. Section 181 of the CA allows a member of a company entitled to attend, vote and speak at a meeting of the company to appoint another person to exercise these rights at the meeting.
  2. Unless the articles otherwise provide:- 
  1. a proxy shall not be entitled to vote except on a poll;
  2. a member shall not be entitled to appoint more than two proxies to attend and vote at the same meeting; and
  3. where a member appoints two proxies the appointments shall be invalid unless he specifies the proportions of his holding to be represented by each proxy.

Many institutional shareholders have been aggrieved as the interests of their members cannot be represented because of this limitation of two proxies. These nominee shareholders represent multiple principals: if they are limited to appointing and being represented by two proxies only, this puts indirect investors at a disadvantage as not all of their views can be represented. This is now to be amended in the CA.

Approved changes to the Companies Act

  1. The CA is currently undergoing its largest number of changes since it was enacted in 1967. With regards to shareholder activism, recommendation 2.10 of the steering committee report states that section 181 of the CA should be amended to the effect that, subject to contrary provisions in the company’s articles, members falling within the following two categories are allowed to appoint more than two proxies provided that each proxy is appointed to exercise rights attached to a different share or shares and the number of shares and class of shares shall be specified:- 
  1. any banking corporation licensed under the Banking Act or whollyowned subsidiary of such a banking corporation, whose business includes the provision of nominee services and who holds shares in that capacity; and 
  2. any person holding a capital markets services licence to provide custodial services for securities under the Securities and Futures Act. 
  1. This recommendation has been accepted by the Ministry of Finance which agrees that this change will better enfranchise indirect investors (namely beneficial shareholders who hold shares via a nominee company or custodian bank) and encourage more active participation at general meetings.

Singapore Code of Corporate Governance

  1. Although compliance with the Singapore Code of Corporate Governance (CodeCG) is not mandatory, listed companies are required under the Singapore Exchange Listing Rules to disclose their corporate governance practices and give explanations for any deviations from the guidelines of the CodeCG.
  2. Rights relating to general meetings 
  1. Companies should ensure that shareholders have the opportunity to participate effectively in and vote at general meetings of shareholders. Shareholders should be informed of the rules, including voting procedures that govern general meetings of shareholders.
  2. Companies should encourage greater shareholder participation at general meetings of shareholders, and allow shareholders the opportunity to communicate their views on various matters affecting the company.
  1. Right to be treated fairly

The CodeCG encapsulates the principles that companies should treat all shareholders fairly and equitably, recognise, protect and facilitate the exercise of shareholders’ rights and continually review and update such governance arrangements.

  1. Right to communication

Companies should actively engage their shareholders and put in place an investor relations policy to promote regular, effective and fair communication with shareholders.

  1. In the revised CodeCG there is an annexure setting out a statement on the role of shareholders in engaging companies in which they invest. Among other things, this states the following:- 
  1. By constructively engaging in the board, shareholders can help to set the tone and expectation for governance of the company.
  2. A shareholder’s vote at general meetings is a direct way of expressing views and expectations to the board.
  3. Where relevant, shareholders should communicate to the board their reasons for disagreeing with any proposal tabled at a general meeting.

The Singapore Code on Takeovers and Mergers

  1. The Singapore Code on Takeovers and Mergers (CodeTM) provides the main regulatory framework for the conduct of takeover and merger transactions in Singapore.
  2. An activist shareholder is likely to seek support from fellow shareholders in pursuit of his agenda.
  3. The activist shareholder should consider the provisions in the CodeTM as acting in concert with the board or other shareholders could result in the parties having to make a general offer.
  4. The Securities Industry Council (Council) will presume shareholders who requisition or threaten to requisition the consideration of a board control-seeking proposal at a general meeting, together with their supporters as the date of requisition or threat, to be acting in concert with each other and the proposed directors. Such parties will be presumed to be acting in concert once an agreement or understanding is reached between them in respect of a board control-seeking proposal with the result that subsequent acquisitions of interests in shares by any member of the group could give rise to an obligation to make a general offer.
  5. Where a party has acquired shares independently of other shareholders or potential shareholders but subsequently joins them to co-operate to obtain or consolidate effective control of a company, Council would not normally require a general offer to be made even if their existing aggregate shareholdings amount to 30% or more of the voting rights of the company. However, if persons acting in concert hold between 30% and 50% of the voting shares, a mandatory takeover bid may be required if any of those persons acquires shares carrying more than 1% of voting rights in the company within any six month period.
  6. In determining whether a proposal is board control-seeking, Council will consider: 
  1. the relationship between any of the proposed directors and any of the shareholders proposing them or their supporters;
  2. whether there is or has been any prior relationship between any of the proposing shareholders, or their supporters, and any of the proposed directors;
  3. whether there are any agreements, arrangements or understandings between any of the proposing shareholders, or their supporters and any of the proposed directors with regard to their proposed appointment; and
  4. whether any of the proposed directors will be remunerated in any way by any of the proposing shareholders, or their supporters, as a result of or following their appointment. 

If on this analysis there is no relationship between any of the proposed directors and any of the proposing shareholders or their supporters, or if any such relationship is insignificant, the proposal will not be considered to be board control-seeking such that the parties will not be presumed to be acting in concert.

Section 139 of the Securities and Futures Act provides that where Council has reason to believe that any party concerned in a take-over offer or a matter connected with the same, or any person advising on a take-over offer or a matter connected with the same, is in breach of the provision of the CodeTM or is otherwise believed to have committed acts of misconduct in relation to such take-over offer or matter, Council shall have power to enquire into the suspected breach or misconduct.

Insider dealing and defamation considerations

  1. Shareholder activists ought to be careful if they are liaising with the board as they might be at risk for insider trading if they trade based on price sensitive, confidential information they have acquired.
  2. When making allegations, the shareholder activist should take into account the laws of defamation. In Singapore, a statement is defamatory in nature if it tends to lower the plaintiff in the estimation of right-thinking members of society generally or cause the plaintiff to be shunned or avoided or expose the plaintiff to hatred, contempt or ridicule. If an allegation however is objectively true then the shareholder could argue fair comment.