The shifting sands of shareholder activism

 April 2020 / Link Group

Jai Baker talks about shareholder engagement during the UK's lockdown and beyond

If we have learnt anything in the past month, since the UK was placed into lockdown, it’s that shareholder engagement - in its many forms - remains a little 'hit and miss'. The institutional shareholder remains vocal, ensuring companies are held to account either through direct engagement or via the proxy vote. A strong sword will influence the decision-making tree without question.

However, the retail shareholder is less able to exert pressure even within the voting arena. But shareholder groups have taken up the strain, becoming a little more vociferous in arguing for shareholder rights. Indeed, the economic consequences of the lockdown may pit shareholders against companies or boards like never before.

So where are the noises being directed?

General Meetings

We have seen a complete departure to the norm.

Two thirds of FTSE100 companies will hold their AGM behind closed doors whilst maintaining minimum quorum requirements, with the remaining constituents considering holding a hybrid or virtual AGM. This allows all registered shareholders, proxies and appointed representatives to dial in and participate.

If the news reports are to be believed, these new meeting arrangements could become the norm for the medium term - assuming social distancing policies remain in place.

UK govt. has promised measures to help companies in conducting shareholder meetings, which is especially relevant if a company cannot hold a hybrid or virtual meeting by virtue of its articles. That legislation is expected during May, which will likely be too late for those companies with a December year-end – unless the six-month requirement is extended.

Across the Irish sea, we have seen a challenge to the closed-door preference of many companies which could hit the courts any day now.

Overall, the message to registered shareholders is to engage in the proxy-voting process. After all, it is the opportunity for shareholders to hold the board to account. They can make use of any opportunities offered by issuers to register questions online and engage with the board.

The larger message from the shareholder groups is to widen the proxy vote to beneficial investors within the intermediated structure of nominee positions. This is probably an argument for another day, given that UK and Irish infrastructure and law does not allow for end investor voting. Perhaps pressure should be applied to the nominee providers to allow voting directions to be given by the end-investor up to the registered holder.


Both the FCA and PRA have asked the leading banks to pull their dividends for the remainder of the year. The impact of this decision is widespread and hits all direct and indirect investors through income generation and pension pots.

The question of course remains whether other industries should follow suit. We all have an interest in this debate, not least those directly held shareholder positions. On the one hand, shareholders would like to continue to receive income. But, on the other, companies must preserve as much capital as possible to sustain the business and weather the storm.

Some institutional shareholders may be under more pressure to see the dividend preserved as it may affect how they perform for their underlying stakeholders and fulfil their fiduciary duties.

A fine line in the negotiation must be drawn by all parties.


Preservation of cash has not been enough for many companies, with a call from many to some shareholder groups to pump millions into the businesses. It is the type of cash call that has angered some shareholder groups since the quickest option significantly dilutes the retail positions by excluding them from the cash call.

Placings have long been used for a quick fix for cash in place of a Rights Issue or an Open Offer, as these require an extended offer period, associated costs and additional settlement requirements. The Placing arrangement offers a direct to investor settlement on a DvP basis and is free from the constraints of pre-emption rights.

Shareholder groups are asking companies to review all future cash calls with all shareholders in mind. Many retail shareholders are in a position to invest and maintain their shareholding levels and they argue that they wish to be treated as fairly as other investor groups.

Environmental, social and governance, risk and strategy

Once we are on the other side of the current crisis and when markets return to some semblance of normality, companies may find they have equally challenging matters to contend with.

ESG may be fairly low-profile at the moment, but is likely to return with a vengeance as the post-crisis inquiries examine how boards navigated the storm. Companies will have a compelling narrative if they had decisive leadership who took necessary steps to protect business and stakeholders, while focusing on employee health and safety.

Those deemed to have behaved less well may find that failings in ESG areas become the focus for shareholder activists keen to expose what they see as poor leadership.

In addition, pre-lockdown business strategies and risk assessment may be revisited. Activists may be keen to see change and would be able to use perceived strategy and risk “failures” to exert pressure on the board and company.

Activist campaigns

Recently, one of the world’s largest fund managers, Legal & General Investment Management, warned companies it will take action if they fail to show good corporate practice during the crisis.

The UK’s largest asset manager, which has more than £1.1tn in assets, is expected to take a tough stance against directors who mistreat employees and suppliers. Whilst this approach is in line with stewardship expectations, some investors may have both stewardship and other corporate change in mind.

The campaigns of large-scale institutional shareholder activists might be on hold at the moment, like changing board directors, challenging company strategies or forcing corporate mergers/sales. However, in this climate such activists may well be building stakes and fundraising to bolster future actions.

It is likely that such activism will remain a source of risk for corporate entities and not just for those companies who may be deemed to be in distress. Shareholder activists may look at management change, governance or operational changes, and agitate for mergers or disposals. Preparedness is crucial and companies may want to:

  • refresh defence profiles and strategies
  • continue to monitor closely changes in share ownership
  • have measures in place to identify stake building
  • organise regular communications with investors.

We all have much to consider when our lives are subject to major disruption. Many commentators agree that our lives post-lockdown will not return to how they were before.

The “new normal” will change our lives in many ways. For companies, the opportunities and threats will change as the sands beneath their feet shift to accommodate the new world.

However, the share ownership relationship will still be strong and many activist shareholders will see the shifting sands as an opportunity to bring about change.

Companies will want to be on the front foot to meet all challenges and make sure the changes that are made are in the best interests of all stakeholders.

A recent paper written by Orient Capital , a Link Group company, looks at ESG in more detail. You can take a look here .

You can get in touch with Jai Baker

You can also listen to Jai in our latest Link podcast as he catches up with Gabbi Stopp from ShareGift: