Shareholder activism is increasing in the UK.
Managers of capital are under increasing pressure
to demonstrate that they are adding value to their
investments. This obviously extends to stakes in listed
companies, whether held by institutional investors
or by hedge funds. This briefing summarises the
key options available to activist shareholders and
considers how UK listed companies should conduct
themselves in the face of potential activist action.
In the UK, activist shareholders have a number of tools
they can use to seek change in a listed company. The
tools used fall into two broad categories: “soft”, nonstatutory
based tactics. The use of soft tactics, most
obviously dialogue with the target’s management or,
if this is considered not to be working by the activist,
the publication of open letters criticising the listed
company and seeking to solicit shareholder support
for the activist’s objective, are well known.
The UK Stewardship Code, published by the Financial
Reporting Council, is a code for institutional investors
when engaging with the UK listed companies.
It applies on a “comply or explain” basis and is
principally addressed to firms who manage assets
on behalf of institutional shareholders (e.g. pension
funds and insurance companies). The UK Stewardship
Code recommends institutional investors establish
clear guidelines on when and how they will escalate
their stewardship activities. It says that the process is
likely to start with initial discussions on a confidential
basis. However, if companies do not respond
constructively when institutional investors intervene,
then institutional investors should consider whether
to escalate their action, for example, by holding
additional meetings with management specifically
to discuss concerns or expressing concerns through
the company’s advisers.
Statutory Tools - Companies Act 2006
In terms of statutory tools, the Companies Act 2006
provides shareholders in a UK company which is
listed with a number of tools. The table below sets
out the key options.
Action Shareholding required Comment
Inspection and copy rights
for the register of members
Any shareholder may request By requesting a copy of the register of members, an
activist can find out the identity of other shareholders
which can then be used to gain support for the
The request must be for a “proper purpose”.
Requisition a general
5% Shareholders can require the directors to call a
general meeting of shareholders.
However, any resolution is not treated as having
been properly requisitioned if it would be ineffective
if passed because it is inconsistent with the
company’s constitution or if it is defamatory, frivolous