Shareholder Activism

Author:Mr Jon Harris
Profession:Pinsent Masons
 
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Shareholders are suffering. The downturn in the global economy and recent financial scandals have affected them badly. They are now asking questions and demanding action of companies. But what can shareholders do and how companies should react?

Shareholder activism is on the rise. Witness the recent signs - the attempts by Hermes to remove Sir Angus Grossart from the board of Scottish Investment Trust and the announcement in April 2002 that Stelios Haji-Ioannu would step down from the board of easyJet at the company's 2003 AGM. Shareholders in Glaxo Smithkline forced a climb-down from plans nearly to double the $10 million benefits package of the chief executive and in January 2003 The National Association of Pension Funds objected to the make-up of the boards of BOC and Bellway.

Although investors can bring informal complaints to the board, under the Companies Act 1985 shareholders can also requisition EGMs and circulate resolutions for discussion at the company's AGM.

Requisitioning an EGM

Members of a company holding one tenth of the paid up capital carrying the right to vote at a general meeting can require the directors of the company to convene an EGM. The requisition must:

state the object of the meeting

be signed by the members requisitioning the meeting

be deposited at the registered office of the company

Proposing an AGM resolution

Shareholders representing not less than 5% of the voting rights in the company or no less than 100 shareholders holding shares in the company on which there has been paid up an average sum, per member, of not less than 100 can require the company to circulate a resolution for discussion at the AGM. The requisition must be signed by all the requisitionists and must be deposited at the company's registered office at least six weeks before the meeting, if requiring notice of a resolution or, if not, one week before the meeting.

The Company's reaction

The company should check that the requirements of the Companies Act (referred to above) have been complied with by the requisitionists.

The company should check to see whether the resolutions are capable of being passed:

a resolution must be sufficiently precise to be binding

a resolution must not conflict with the provisions of the company's articles of association

a resolution must not attempt to interfere with the management of a company as articles normally vest responsibility for the management of the company with its directors

Tactics

The...

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