Company response strategies


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?

Where a shareholder's proposal has been made in time by a shareholder with the requisite amount of shares, as long as that proposal is in line with the statutes and articles of incorporation, the board will accept the proposal as an agenda item at the shareholders’ general meeting. If the board fails to do this, it violates the law and the directors’ liability may not therefore be limited or exempt by the business judgement rule.

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 advisable to listen carefully to shareholder activists’ opinions and positively consider meaningful advice in the board or shareholders’ meetings. If the opinions are found to be unreasonable, it is recommended to inform the shareholders and the media that the demands are unjustifiable and that they will be denied. As the number of shareholder activism cases increases, attention and concern within companies and their boards will rise.


What defences are available to companies to avoid being the target of shareholder activism or respond to shareholder activism?

The main targets of shareholder activism are companies with:

  • no eminent major shareholder or low control of the major shareholder;
  • devaluated shares and low dividend payouts; or
  • poor corporate governance structure.

In order to avoid being a target of an activists’ fund, major shareholders may:

  • increase holdings of shares;
  • increase dividend payouts;
  • reinforce procedural and material contents of management judgement; and
  • develop communication with shareholders and proxy advisers.

When activists make demands against a company, the company should positively review such demands as long as they are justifiable and aligned with the shareholders’ interests. However, the company should also observe whether the shareholders have complied with their obligations to disclose shares and fulfil legal requisites to solicit proxies, or indeed whether they have violated the law by damaging the reputation of the company or the management. When the information requested by the activists is material non-public information or subject to regulations regarding fair disclosure, the companies should not share such information. In addition, investor-friendly policies are necessary (eg, strengthening communication through official shareholder communication channels and establishing a management conduct code).

Reports on proxy votes

Do companies receive daily or periodic reports of proxy votes during the voting period?

No. All voting is conducted on the day of the shareholders’ meeting and the company is not permitted to receive daily or periodic reports regarding proxy votes.

Private 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?

There are few cases where activists’ demands have been accepted. However, there have been some instances where a company has compromised with shareholders on appointing outside directors, improving corporate governance and increasing dividend payouts, among other things.