To illustrate, the Australian Shareholders Association estimates the average market capitalisation of ASX200 companies (excluding the top 20) is about A$2.6 billion. The investment required to obtain the 5% shareholding to requisition a general meeting under the remaining provisions of the Corporations Act would therefore be in the magnitude of A$130 million, well beyond the reach of a small investor or lobby group.
Obviously the abolition of the 100-member rule will have less impact on institutional activist groups, such as Lone Star, which have far greater resources at their disposal.
So where does this leave the small retail investor who wants to raise concerns with the board? It’s important to understand that it’s only the 100-members power to requisition a general meeting that is being repealed under the current bill. Other shareholder rights provisions of the Corporations Act will remain intact. Small shareholders can continue to use the 100-member rule to force a discussion with the board, but must wait until the scheduled AGM to do so.
Investors also still have access to the two strikes rule, designed to hold directors accountable for executive salaries and bonuses.
The question remains to what extent small shareholder participation in the management of the company is reasonable or desirable.
Share investments carry ownership rights but not management rights. It’s an established legal principle that shareholders cannot tell directors how to run their company unless the company’s constitution explicitly gives such powers to shareholders. Shareholders have a legitimate interest in how the board exercises its powers but they have no part to play in the actual exercise of those powers.
At the same time the board is accountable to members, including small shareholders, who unlike institutional investors may not have an opportunity to speak to the board outside of the AGM.
But we should remember that like all shareholders stuck with an underperforming board, retail investors also have the option of simply selling their shares – the ultimate form of shareholder activism.
Julie Walker has previously received research funding from the Institute of Chartered Accountants in Australia. She is affiliated with Chartered Accountants Australia New Zealand.
This article was originally published on The Conversation. Read the original article.
