Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 7

Shareholder activism in Australia

An old investing adage states, “more money has been lost through corporate mismanagement than at the point of a gun.” By simply running their finger down a list of history’s biggest (or smallest) corporate disasters and missteps, an investor can quickly spot several common themes emerging: flawed strategies, improper capital structure, capital misallocation, poor governance and so on. Curiously, (mis)management can be singled out as the common thread amongst all of these precursors to gloom.

The investor of yesteryear was therefore held captive largely by the capabilities possessed by the management of the company into which they had bought, as opposed to the dynamics of the underlying business itself. Buying into a bad business can at times turn out to be a good investment, whereas buying into a bad management almost certainly will not.

Whilst over the last few years management capabilities haven’t dramatically improved for the most part, the emergence and prevalence of ‘activist investing’ has implied that shareholders can now retaliate against or influence almost all forms of corporate wrongdoings in a more effective, organised (and sometimes public) fashion. All the while, these activist investors have enjoyed lower risks and longer term outperformance that is largely uncorrelated to the broader market – not to mention gaining the ability to look at a broader range of opportunities, seeing as they are not reliant on previous ‘bet-on-the-jockey-not-the-horse’-type investments.

Shareholders and their relationship with companies

The sharemarket presents a strange dichotomy: shareholders who, as providers of capital, own the underlying company they invest in never actually control how their capital is used once it is handed over to the business. Instead, shareholders entrust the oversight and management of their company to the board and the executives, respectively. Therefore, it is no surprise that poor governance is often at the top of an activist investor’s watch list, as an activist strategy is often undertaken in the presence of a management or a board following (hopefully unintentional!) procedures that destroy shareholder wealth. The activist investor must therefore first think carefully about whether a company has the right board.

Stranger still is the fact that few investors (read ‘owners of the company’) have the opportunity to actually meet with the directors of a listed company. Observations or opinions about boards are usually third or fourth hand at best, or are formed from what shareholders see, hear and read in the media. We find that asking questions at an AGM is always a good opportunity to directly ‘test’ directors.

However, shareholder activism is not just about corporate governance. Governance is only a means to an end, not the end itself. An activist investor becomes a shareholder of a company initially because they believe there is some inherent value and that, by seeking change, they can create or enhance that value. Outsized investment returns and the unlocking of latent value are the ultimate destination and activism is a quicker path to get there. It is important to not lose sight of the main objective of increasing your future dollars above and beyond the risk you have taken in forgoing today’s dollars.

Activism techniques

Luckily, Australian shareholders have, through the Corporations Act, one of the most shareholder-friendly legislative frameworks globally. Most parts of this law operate with minimum requirements where shareholders seeking to exercise these rights must either hold more than 5% of the shares on issue or there must be at least 100 shareholders making the request. Subject to these and some other requirements, activist shareholders can, amongst other things:

Call for a general meeting
There are two ways of doing this. The first is where those shareholders call on directors to call a meeting (section 249D). The second (rarer) method is where the shareholders call a meeting themselves, and then are responsible for the expenses of calling and holding the meeting (section 249F).

Put forward shareholders’ resolutions
Shareholders who meet the minimum thresholds outlined above can give a company notice of their intention to put forward resolutions to be considered at a general meeting. The majority of resolutions can be passed by shareholders by a simple majority of votes cast, including the removal and nomination of directors.

Require that a company distribute a shareholders’ statement
Shareholders who call for a resolution can also request the company distribute a statement to all shareholders, which would typically be used to make the case for the particular point of view those shareholders are espousing.

Seek the removal of a director
Shareholders can call for the removal of one or more directors of a public company (section 203D). Practically, this would occur by calling for a general meeting at which a resolution to remove one or more of the directors would be put to shareholders.

Nominate directors
Shareholders can also nominate directors. As above, shareholders would usually need to call for a general meeting at which one or more resolutions to appoint directors would be put to shareholders.

The points listed above are very much the public face of activism. However, the work of an activist often takes place behind closed doors. Lobbying privately for a particular course of action can be far more productive than taking a very public route.

It is important when formulating a strategy to ensure that other shareholders are likely to support it. If an alternative strategy cannot obtain support from other shareholders, then it is likely the strategy needs more work. Sometimes though, support can be difficult to garner because of investors’ differing investment objectives. For example, sometimes retail and institutional investors may have different time horizons.

Shareholders should not abuse these rights by exercising them flippantly and frequently. Each time a meeting is called, it costs the shareholders money.

Role of shareholder activism

We believe shareholder activism is best applied to situations where shareholder value has been destroyed or where there is a persistent failure to deliver. Companies have to take risks and sometimes they do not pay off – that’s just how business works. However, if a company persistently takes business risks that do not pay off, then one has to start asking some serious questions. This is where it all starts. Through their investment endeavours, activist investors keep companies and their boards in check.

There are few examples of activism at work in Australia, and that is not necessarily a negative. In the world of investing, the less the merrier, seeing as knowledgeable participants travelling along a less-crowded investment path are usually more handsomely rewarded for their insight.

Of the few examples, many have been driven by labour or environmental agendas, as opposed to compelling investment opportunities. When they have been investment-driven, we would characterise them more as being ‘reactive’ activism. Reactive activists are shareholders who have sought to take action because a company in which they are invested has failed to deliver or it proposed to undertake a course of action the investors did not support. In contrast, the dedicated activist (a ‘thoroughbred’ in investment-geek parlance) is the investor who actively seeks out companies with the intention of engaging directly with the board and management.

Overall, we see the role of the activist investor as important to the efficiency of the Australian capital markets and in the protection and enhancement of common shareholder wealth. There has been increased interest in this investment strategy, which we see as beneficial to all market participants, especially shareholders.

 

Gabriel Radzyminski is the Founder and Managing Director of Sandon Capital. Sandon Capital is an investment management and advisory firm and has been involved in a number of ‘activist’ engagements, advising both shareholders and companies.

 


 

Leave a Comment:

     

RELATED ARTICLES

Why investment stewardship matters for long-term investors

Investor downside when management controls access to the board

Lessons from a famous shareholder activist battle

banner

Most viewed in recent weeks

What to expect from the Australian property market in 2025

The housing market was subdued in 2024, and pessimism abounds as we start the new year. 2025 is likely to be a tale of two halves, with interest rate cuts fuelling a resurgence in buyer demand in the second half of the year.

Retirement is a risky business for most people

While encouraging people to draw down on their accumulated wealth in retirement might be good public policy, several million retirees disagree because they are purposefully conserving that capital. It’s time for a different approach.

The perfect portfolio for the next decade

This examines the performance of key asset classes and sub-sectors in 2024 and over longer timeframes, and the lessons that can be drawn for constructing an investment portfolio for the next decade.

Howard Marks warns of market froth

The renowned investor has penned his first investor letter for 2025 and it’s a ripper. He runs through what bubbles are, which ones he’s experienced, and whether today’s markets qualify as the third major bubble of this century.

The challenges with building a dividend portfolio

Getting regular, growing income from stocks is tougher with the dividend yield on the ASX nearing 25-year lows. Here are some conventional and not-so-conventional ideas for investors wanting to build a dividend portfolio.

How much do you need to retire?

Australians are used to hearing dire warnings that they don't have enough saved for a comfortable retirement. Yet most people need to save a lot less than you might think — as long as they meet an important condition.

Latest Updates

Superannuation

So, we are not spending our super balances. So what!

A Grattan Institute report suggests lifetime annuities as a solution to people not spending their super balances. The issue is whether underspending is the real problem or a sign of more fundamental failings in our retirement system.

Investment strategies

The two best ways to maximise dividend income

People often marvel at Warren Buffett now getting 60 cents in annual dividends on every dollar he invested in Coca-Cola 30 years ago. What’s often overlooked are the secrets to how he achieved this phenomenal result.

Taxation

The fetish for lower taxes has gone too far

Since the time of Reagan and Thatcher, most business leaders and investors have clung to a dogmatic belief that lower taxes bring higher profits and economic growth. The truth, as always, is far more complicated than that.

Superannuation

Meg on SMSFs: Winding up market linked pensions with care

Due to recently-introduced rules, many people with old style pensions, also known as legacy pensions, will look to wind them up this year. The temporary amnesty allowing these pensions to be stopped should be navigated with care.

Property

Why our Torrens title property system hasn't been adopted elsewhere

Far from an outdated relic, Torrens title appears to be the revolutionary, cheap, low-risk way to handle property dealings. Here's a look at why this Australian invention from the 1850s hasn't caught on more widely.

Property

DigiCo REIT and the data centre opportunity

Data centres offer compelling growth prospects. But their potential hasn't gone unnoticed, and DigiCo appears to be buying properties in a seller’s market, resulting in better opportunities being found elsewhere.

Retirement

The $1.2 trillion sea change facing Australian investors

Over the next decade, three million Australians will shift from accumulating wealth to living off it. Those taking part in the great migration need a sound strategy that delivers sustainable income and protection from market bumps.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.