The Shareholder Rights and Activism Review: Australia


Over the past several years, the governance landscape in Australia has been marked by an intense focus on corporate culture and accountability, in large part driven by systemic non-financial risk management failings identified by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Financial Services Royal Commission). During 2019, this overarching trend resulted in many institutional investors taking more activist stances with respect to potential areas of financial, non-financial and reputational risk at listed Australian companies, particularly with respect to climate change risk exposures. It also resulted in retail shareholder activists continuing apace with campaigns directed at environmental, social and governance (ESG) issues.

This focus on non-financial and reputational risk management has coincided with a number of developments in the ESG space and disruption catalysed by the covid-19 pandemic. On the human rights front, Australian companies' first reporting periods under the federal modern slavery reporting regime have commenced, and covid-19 has shone a spotlight on businesses' supply chain resiliency and workforce practices. On the environmental front, a particularly severe bushfire season and a temporary (and unsustainable) drop in greenhouse gas emissions during covid-19 have also enlivened debate about the role of Australian companies in combating climate change. While there were calls for investors to allow boards some space to focus on crisis management at the height of the pandemic, activist campaigns have largely continued in Australia unimpeded and, in the lead-up to the 2020 annual general meeting (AGM) season, it is expected that the number of campaigns will increase.

Legal and regulatory framework

The Australian regulatory framework is conducive to activist campaigns with clear statutory rights afforded to shareholders in respect of accessing the company's register of shareholders and contacting its shareholders, nominating and removing directors, and requisitioning resolutions and calling shareholders' meetings. Further, Australian listed companies are not permitted to have 'poison pills' and almost universally have a single class of ordinary voting shares, as required by the Australian Securities Exchange (ASX). However, despite this, there are certain defences and structural advantages available to boards and management of listed companies in Australia when responding to activist campaigns.

i Contacting shareholders

Under the Corporations Act 2001 (Cth) (the Corporations Act), companies are required to allow anyone to inspect and request copies of their register of shareholders. This statutory right is commonly used by shareholder activists to gather shareholders' contact details to write to them regarding activist proposals or to solicit votes in respect of upcoming shareholders' meetings.

By accessing the register (or obtaining a copy), a person would obtain each shareholder's name and address, as well as details regarding his or her holding in the company. At present, the information does not include email addresses as these are not prescribed details for inclusion in the register. A law reform proposal introduced in 2017 to include email addresses on company registers has stalled for the time being.

It is an offence to use information about a person listed in the register to contact or send material to him or her, unless the use or disclosure of that information is relevant to the shareholding of that person or to the rights attaching to the shareholding. However, activist proposals will generally comply with this requirement because they would typically be relevant to the exercise of votes by shareholders. Where shareholder activists send material to shareholders that is inaccurate or that the company's board considers is misleading, there are a number of avenues open to the board, including taking action against the activists for engaging in misleading or deceptive conduct or, potentially, defamation.

The register of shareholders only contains the details of the legal holders of shares (i.e., not the underlying beneficial holders). This can create a significant barrier to shareholder activists contacting shareholders because it means that they are reliant on the timely relay of information by intermediaries and custodians. A separate register of relevant interests held in the company's shares, including beneficial interests, is also required to be kept by the company under the Corporations Act. However, these registers only contain information regarding shareholders' beneficial interests where it has been specifically requested by the company pursuant to a 'tracing' notice and the data is often not helpful to shareholder activists or other users (as companies are only required to share the raw data and not their internal analysis of underlying beneficial interests).

Of course, as a substitute for corresponding with each shareholder, activists typically limit their direct engagement to the key underlying institutional shareholders and then rely on print and social media for indirect engagement with the balance of the register, including retail shareholders (as well as to exert pressure on the board).

ii Calling shareholders' meetings

Shareholders holding 5 per cent of the votes in a company can requisition a shareholders' meeting. Where a meeting is duly requisitioned according to this process, the company's directors are required to convene the meeting within two months of the requisition and the company must meet the costs of holding it. A shareholder request for these purposes must be in writing, state any resolution to be proposed at the meeting, be signed by the members making the request and be properly given to the company. Failure to follow these procedural requirements can invalidate the requisition and companies can, and commonly do, refuse to convene meetings where they are not complied with. The directors may also refuse to convene the requisitioned meeting where the subject of the meeting is a matter that is not validly within the power of shareholders.

Where a meeting is requisitioned using this process, decisions regarding the content of the notice of meeting will be determined by the board (as in the normal course). However, shareholders holding 5 per cent of the votes or at least 100 shareholders are entitled to request that a statement be included with the notice of meeting setting out their views, and there are limited grounds on which companies may refuse to comply with this requirement. Companies may refuse the request where the statement is more than 1,000 words long or defamatory. Although the shareholders would be requisitioning the meeting, almost without exception the company's chair would have the right to chair the meeting under the company's constitution and thereby control the conduct of proceedings of the meeting.

The Corporations Act also includes an alternative process for shareholders with at least 5 per cent of the votes to convene a meeting, in which case they would be in a position to determine the time and venue of the meeting and the content of the initial notice of meeting, but also be liable to pay the expenses of calling and holding the meeting themselves (e.g., printing, postage and venue costs). Again, the chair of the company is likely to be able to chair the meeting under its constitution and control the conduct of the meeting. Despite its procedural advantages for shareholder activists, this alternative process is infrequently used in Australia given the considerable costs it can entail for the convening shareholder.

iii Requisitioning additional resolutions for scheduled shareholders' meetings

Where there is already a shareholders' meeting in contemplation (e.g., an AGM), an alternative process, commonly used by retail shareholder activists, is to requisition additional resolutions for consideration at that meeting. One hundred shareholders or shareholders with 5 per cent of the company's votes may give a company notice of a resolution that they propose to move at a general meeting.

Similar to requisitioned meetings, the notice must be in writing, set out the wording of the proposed resolution and be signed by the members proposing to move the resolution. The company does not need to give notice of the resolution if it is more than 1,000 words long or defamatory. However, it is otherwise required to give notice to shareholders that the resolution will be considered at the next general meeting that occurs more than two months after the notice is given and, provided it is received in time, the company must meet the costs of giving shareholders notice of the resolution.

This is the preferred mechanism for social and environmental shareholder activists to agitate for changes in companies' operations and policies. With the power of social media increasing, what was once a significant logistical hurdle has become a far simpler requirement for social and environmental activists to meet. As a result, campaigns from groups such as Market Forces and the Australasian Centre for Corporate Responsibility (ACCR) have become relatively common for ASX-listed companies.

Where a requisition is received by a listed company from a shareholder, irrespective of whether it is valid, the company is required to make an ASX release within two business days. This creates significant timing pressure for companies in developing their response strategy.

Under Australian law, the board can dismiss a requisitioned resolution if it purports to direct the board how to exercise its powers of management (as set out in its constitution). Generally, to supplant the powers vested in the board, such 'directions' would need to be enshrined in the constitution (with a special resolution requisitioned to amend the constitution for that purpose). This position has been confirmed by the Full Court of the Federal Court of Australia,2 although there have also been calls from the Australian Council of Superannuation Investors (ACSI) for regulatory reform to enable requisitioned non-binding advisory resolutions to be permitted.3

iv Nominating and removing directors

Unlike other comparable jurisdictions, Australian law does not mandate a threshold level of shareholder support for an external candidate to be nominated to the board of a listed company. In most cases, a company's constitution will permit a single shareholder (with a holding of any size) to nominate a person for election to the board and need only comply with the specific timing requirements in the relevant company's constitution.

Because of the simplicity of this nomination process, which requires no minimum baseline level of support, it has occasionally been used by shareholder activists in place of requisitioning resolutions as a platform to advance criticisms of a company or agitate for changes to the company's processes or operations. For the company, an external nomination can involve additional expense and distraction beyond what would otherwise be required with a requisitioned resolution or statement.

The external candidate will typically be elected by securing a simple majority of votes cast at the shareholders' meeting, unless the company is at its constitutionally mandated maximum board size, in which case the candidate will need to outpoll one of the incumbent directors standing for re-election.

The Corporations Act also sets out a process for shareholders that wish to remove a director from a public company's board. This process applies regardless of anything in the company's constitution, though in some cases the constitution may provide additional avenues for removing directors.4

v Other avenues available to activist shareholders

Public listed companies in Australia are required under the ASX Listing Rules to hold an election of directors each year at their AGM, which provides an opportunity for activist shareholders to lodge a protest vote against particular directors or block the re-election of incumbent directors to agitate for board succession.

Australian listed companies are also required to put an advisory resolution to their shareholders for adoption of the remuneration report at each AGM and, in recent years, this has been co-opted by some activist shareholders as a protest mechanism against the company's current management or operations (i.e., for issues outside of executive remuneration). Where a company receives an against vote of at least 25 per cent of the votes cast in two consecutive years (receiving 'two strikes'), a board spill resolution must be put to shareholders that, if passed, will require all non-executive directors to stand for re-election at a special 'board spill meeting' if they wish to continue in office. Although intended to address remuneration-related issues, this mechanism is open to abuse by shareholder activists as an indirect means of placing pressure on the company's directors. The two strikes rule can also be practically difficult for directors from a duties perspective, given that it essentially relies on directors being influenced by factors extraneous to the best interests of the company.

In extreme circumstances, shareholder activists may bring derivative proceedings against the company's directors (being a claim brought on behalf of the company) or seek court orders to address conduct that is oppressive to shareholders.5 Although these types of proceedings rarely proceed to trial in Australia, hostile shareholder activists will occasionally threaten such proceedings to encourage the swift resolution of issues under negotiation. In some cases, proceedings may be instituted; however, this is a high-stakes manoeuvre for activist shareholders because the courts have the power to award costs against the party bringing the action (including full costs indemnification, where appropriate). The Corporations Act includes a process for persons bringing derivative actions to apply to the court for access to the company's documents. Although any such application must be made in good faith and for a proper purpose, it can be used by shareholder activists to help them build a case against the incumbent board or management.

vi Considerations for boards in responding to activist campaigns

In responding to any activist campaign, the board of the relevant company must have regard to their duty to act in the best interests of the company and for proper purposes. Relevantly, under the principles set out in Advance Bank,6 limitations are placed on the board's use of company funds to 'campaign' in relation to contested director elections.

It is relatively unusual in Australia for high-profile companies to be subject to contested director elections involving shareholder mail-outs and extensive lobbying by activist investors. For that reason, the legal limits on how companies can respond to such campaigns are not well defined. However, case law in Australia does allow for:

  1. directors to make recommendations to shareholders where they genuinely believe that it is desirable for shareholders to know their views on matters before the meeting; and
  2. the communication to shareholders of information that is material to their decision on how to vote on the external nomination or shareholder-requisitioned resolutions.

Directors have a duty to provide shareholders with any material information they have in relation to a shareholder activist proposal to ensure that voting proceeds on an informed basis. This permits the directors to rebut inaccurate aspects of activist proposals or present counterarguments for consideration by shareholders (i.e., informing shareholders). It will not, however, extend to the board telling shareholders how to vote on proposals (i.e., urging shareholders) or engaging in debates over issues of personality.

The board's toolkit for responding to a contested director election or other activist proposal would typically include:

  1. formulation of a board recommendation in relation to the external nomination or shareholder requisition;
  2. high-level meetings between directors and substantial shareholders;
  3. the sending of specific communications to shareholders; and
  4. establishment of a shareholder hotline to answer shareholder questions regarding the external nomination or shareholder-requisitioned resolutions.

In some cases, companies may also engage a proxy solicitation firm to make calls to shareholders. This involves a higher level of risk from an Advance Bank perspective, unless it is strictly limited in scope to ensuring that shareholders are aware of the issue (and the relevance of their vote) and the costs involved are reasonable. However, depending on the intensity of the activist campaign, the company may be justified in taking more assertive steps to ensure that shareholders are receiving balanced and accurate information, including the use of proxy solicitation firms.

Key trends in shareholder activism

i Increased focus on ESG matters

Climate change has long been a focus during questions at AGMs for listed companies in the banking, insurance, energy and resources sectors in Australia. However, in the past few years, Australia has increasingly seen requisitioned resolutions concerning ESG matters brought by environmental or social activist groups at companies' AGMs.

A notable example in 2019 was Origin's AGM, which saw simultaneous campaigns from ACCR and Market Forces that between them requisitioned seven resolutions, covering issues as diverse as indigenous people's informed consent to fracking, public health risks of coal operations, Paris goals and targets, lobbying in relation to energy policy, and transition planning. None of the resolutions were approved by shareholders.

Shareholder-requisitioned resolutions are also gaining increasingly high levels of support. A significant example was ACCR's 2020 campaign against oil and gas producer Santos. The activists requisitioned resolutions requesting additional disclosure concerning the company's alignment with the Paris Climate Agreement and emissions targets, as well as a review of its lobbying in relation to energy policy. The resolutions, backed by a number of major proxy advisers, were respectively supported by 43.39 per cent and 46.35 per cent of directed proxies. However, the proposed constitutional amendment on which these resolutions depended was overwhelmingly defeated by 93.32 per cent of the votes. These contrasting results, which are part of a trend, demonstrate that some investors are voting in favour of requisitioned resolutions to 'send a message' to boards about ESG issues without intending for change to be actually effected in a binding way.

In addition to supporting requisitioned resolutions, institutional investors have continued to use portfolio reviews and divestments as tactics to apply pressure on companies about environmental matters. A prominent example was Norwegian Government Pension Fund Global's decision in May 2020 to sell its interest in several listed resources and energy companies or place them 'under observation' over concerns about their greenhouse gas emissions.

On the whole, major listed Australian listed companies are aware of the importance of ESG issues for shareholders and eager to address substantive concerns. Some of the companies that have been targeted by ESG groups are among the most advanced in terms of having a genuine ESG focus, yet are still attracting activist campaigns due to the high profile that such campaigns could generate. This can create dilemmas for directors where a campaign is supported by a significant number of shareholders but the directors do not consider it to be in the company's best interests. Some institutional investors are themselves increasingly feeling the pressure to support activist campaigns because the same social interest groups organising the campaigns have begun targeting and publicly naming institutional investors that oppose them.

ii Increased prominence of overseas 'economic' activists in the Australian market

Traditionally, the Australian experience with shareholder activism has been homegrown and marked by strong activism at the retail level – in particular, small shareholders relying on statutory mechanisms to provide them with a platform to agitate for social or environmental change. However, American-style hedge fund activism has become increasingly prominent in the Australian market. As well as Elliott Management's public campaign against BHP launched in April 2017, a number of other activists in the region have been generating significant media attention – including value campaigns targeting Australian firms launched by Lone Star Funds, Janchor Partners and Coliseum Capital Management, and short campaigns against Australian companies launched by firms such as Viceroy Research.

The emergence of offshore shareholder activists with access to larger pools of capital has resulted in a broader range of targets for activist campaigns. Historically, the vast majority of activist campaigns against Australian companies were waged against small-cap companies. However, recent campaigns have also targeted much larger companies, such as BHP (BHP Group Limited market cap: A$105.1 billion; BHP Group Plc market cap: £34.8 billion) and Iluka Resources (market cap: A$3.56 billion).7 This trend is expected to increase as offshore investors gain confidence and become more active in the region.

iii Continued strength of strategic campaigns by local activists

Despite their recent increased prominence, hedge fund activism and other forms of economic activism are not new phenomena in Australia. Activist shareholders, such as Dr Gary Weiss, have been in the market for decades through various investment vehicles. Prominent local activist shareholders include Merlon Capital, Ariadne (which is Weiss-linked), MH Carnegie, Sandon Capital, Thorney Opportunities, and the local branches of Allan Gray, Lazard Asset Management and Aberdeen Asset Management. The growth in this space is evidenced by the continued emergence of relatively new players, such as diversified alternative asset investment firm Tanarra Capital, which has taken an activist approach to its investment in listed construction-materials firm, Boral.

Activist campaigns by local investors continue to be effective, reflecting local market knowledge and an ability to swiftly seize strategic opportunities. In line with the overall trend for offshore activists, it appears momentum is continuing and, indeed, increasing with recent campaigns from onshore funds such as Tanarra (in relation to Boral), Merlon (in relation to financial services institution AMP), and Sandon Capital (in relation to Iluka Resources).

iv Characteristics of shareholder activist campaigns in Australia

Similar to the United States and the United Kingdom, hedge fund or economic activists operating in Australia typically seek to make an economic gain on an investment (usually in the short term) through means that are not aligned with the current strategy of the company. Common activist goals include:

  1. persuading companies to make a capital return or pay a special dividend;
  2. changing the business strategy (which may involve a change in management or board composition);
  3. restructuring or selling a significant asset; or
  4. putting the company 'in play' or seeking to extract a higher price in a change of control situation.

Some activists may also 'bet against' companies that they perceive to be overvalued, looking to encourage a downward correction in the share price so they can close out a short position at a profit.

Though opportunities are most often identified by shareholder activists based on their own investment theses and research, in some cases they may be the result of institutional shareholders making a 'request for intervention'. Requests for intervention are most often made in respect of Australian companies with high levels of passive ownership through superannuation and pension funds, given those investors are often prevented from effecting changes at their portfolio companies themselves owing to resourcing and reputational considerations.

Until recently, the vast majority of activist campaigns in Australia have been conducted 'behind closed doors', with private approaches made by shareholder activists to companies' boards. Where the activist holds a significant stake, or is aligned with the board and management on a particular issue, it is common for the board to reach an understanding or negotiated outcome with the shareholder, in which case the matter would not usually become public. Often, at this stage, the activist would privately engage with members of the investment community to build momentum for change and increase pressure on the company's board.

In Australia, it has historically been rare for shareholder activists to publicly advocating for their proposed course of action (e.g., through white papers, open letters to the board, their own website or the media). However, recent activist campaigns have borrowed more heavily from the American hedge fund activist playbook, with tactics including:

  1. publicly criticising of the board, individual directors and management;
  2. forming informal investor alliances and voting blocs;
  3. proposing or supporting candidates for appointment to the board;
  4. advocating for (or formally proposing) removal of existing directors;
  5. requisitioning shareholder resolutions and members' statements;
  6. requisitioning extraordinary general meetings of shareholders; and
  7. encouraging unsolicited offers for the company or its assets.

v Limitations on collaboration by shareholder activists

Under the Corporations Act, investors may become 'associates' for takeover and substantial holding notice purposes where they act together in relation to a common portfolio company. This provides an important protection for Australian companies in respect of the 'wolf pack' type tactics sometimes seen in the United States, as it prevents shareholder activists from taking control of a company if other shareholders are uninformed about this passing of control and are not given any opportunity to obtain a control premium (or other benefits that would be paid if control were to pass legitimately).

Under the Corporations Act, an investor can become an associate of another investor if they propose to:

  1. enter into, or have already entered into, a relevant agreement with the other investor for the purpose of controlling or influencing the composition of the entity's board or the conduct of the entity's affairs; or
  2. act, or are acting, in concert in relation to the entity's affairs.

As stated by the Australian Securities and Investments Commission (ASIC) in regulatory guidance,8 investors concerned about common issues may become associates or be regarded as having entered into a relevant agreement for the purposes of the takeover or substantial holding provisions. This is because these provisions are not only concerned with the power of individual investors in relation to the voting and disposal of shares in companies, but also the aggregated voting power of groups of investors who are either related or associated with each other in relation to some aspect of the entity's affairs. Depending on the aggregated voting power of the group, investors acting collectively in this way may be required to lodge substantial holding notices relating to the group, be prohibited from acquiring further interests in the entity under the takeover prohibition in the Corporations Act, or even breach the takeover provisions.

The regulatory guide also clarified the circumstances in which investors acting collectively will and will not be taken to be associates for the purposes of the takeover and substantial holding notice provisions of the Corporations Act. Conduct that is permissible and unlikely to cause issues includes holding discussions with other investors, making recommendations to other investors in relation to voting, and making individual or joint representations to the company's board. Conduct that is likely to raise issues with associateship includes jointly signing requisitions for shareholders' meetings or resolutions, formulating joint proposals in relation to board appointments or strategic issues, accepting inducements to vote or act in a specific way, agreeing on a plan concerning voting or limiting their freedom to vote (e.g., by granting another investor their irrevocable proxy).

Another aspect that is unique to Australian law, especially relative to the United States, that renders wolf pack tactics high-risk is the country's broad insider trading rules that apply in relation to trading while in receipt of any material information in respect of a company (irrespective of whether it was sourced from a company insider). Prohibitions on 'tipping' similarly apply in relation to any material information regardless of its source. Knowledge of an activist hedge fund's intent to target a company on governance grounds could, in the context of a clear track record of being able to force a significant corporate transaction, constitute materially price sensitive information.

Recent shareholder activism campaigns

i Coles

Coles was subject to the first modern slavery-related shareholder requisition against an Australian company at its 2019 AGM. The resolution was co-filed by ACCR, the Labour Union Co-operative Retirement Fund (LUCRF), Mercy Investments Services, and St Columban's Mission Society, and proposed a review of Coles' sourcing practices in its fresh food supply chain.

Coles responded by announcing an accord signed with three of Australia's largest unions in the week before its 2019 AGM to promote ethical employment practices and protect the rights of workers in its supply chain, with a particular focus on those engaged by labour hire organisations. Coles also committed to convening regular town halls to enable workers to air grievances and meeting regularly with the unions to discuss and develop new initiatives and investigate complaints in relation to the company's suppliers.

Despite this, the requisitioners did not withdraw the resolution. The resolution was ultimately unsuccessful, although it gained the support of 17.78 per cent of directed proxy votes.

ii Major banks

Whereas shareholder activists' key focuses at major Australian banks' 2018 AGMs were accountability and corporate conduct as the Financial Services Royal Commission conducted its hearings, there was a renewed focus on environmental matters in the 2019 AGM season.

Market Forces led a campaign against NAB, ANZ and Westpac, three of the 'Big Four' Australian banks, to requisition shareholder resolutions about annual disclosures on strategies and targets to reduce exposure to fossil fuel in line with the Paris Agreement. Separately, ACCR submitted shareholder requisitions that called on NAB and ANZ to suspend memberships of industrial associations that engage in lobbying alleged to be inconsistent with the Paris Agreement's goals. None of the relevant resolutions were ultimately passed.

The banks' responses were similar to those often taken by energy and resources companies when faced with these types of requisitions (i.e., highlighting their existing actions on environmental issues and explaining why their boards do not consider the proposed resolution to be in the company's best interests). NAB also pledged to exit financing for thermal coal projects by 2035, but was unable to convince the requisitioning shareholders to withdraw their requisitions. By way of contrast, the Commonwealth Bank of Australia, the only 'Big Four' bank to have avoided a requisitioned resolution at its 2019 AGM, had pledged to exit thermal coal lending by 2030.

iii Qantas

The issue of Qantas' involvement in the deportation of refugees and asylum seekers was the subject of a second shareholder requisition at its 2019 AGM. The ACCR requisitioned a resolution that Qantas review its policies relating to involuntary transportation undertaken for the Department of Home Affairs and disclose the results to shareholders.

Although Qantas had updated its due diligence guidelines to note that it would now receive information from the Department of Home Affairs about any pending court proceedings involving a deportee, the requisition still attracted the support of institutional investors, including US-based asset manager Mercy Investment Services. Whereas the 2018 requisition was only supported by 6.43 per cent of the vote, the 2019 requisition was supported by 23.56 per cent.

iv Energy and resources companies

For examples of recent campaigns against major Australian energy and resources companies, see Section III.

Regulatory developments

i Virtual general meetings during covid-19

The Australian Government's covid-19 response has included temporary legislative changes to facilitate the holding of virtual general meetings.

By eliminating the need for physical travel, these changes can make it easier for shareholder activists to participate in general meetings. Conversely, virtual meetings protect companies from some of the more disruptive tactics that activists may use, such as protests and interruptions.

Many companies are encouraging shareholders to submit questions before their virtual meetings. This gives them an opportunity to consider the questions in advance of the meeting and to remove duplicative questions. Australian companies have largely resisted calls for all submitted questions to be published due to concerns that some questions may include defamatory or misleading materials (and are not legally required to be published).

ii Fourth edition of the Corporate Governance Principles and Recommendations

The fourth edition of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations (the Fourth Edition Principles) comes into effect for listed entities' first full financial year commencing on or after 1 January 2020. A number of aspects of the Fourth Edition Principles have the potential to catalyse further activism against ASX-listed companies, including a recommendation for ASX 300 entities to target having at least 30 per cent of directors of each gender on their boards and additional commentary on the disclosure of material exposure to environmental or social risks by companies (including a statement that companies that believe that they do not have such exposure are now expected to benchmark their disclosure practices against those of their peers and entities that do have such exposure are encouraged to consider implementing the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures). The recalibrating of expectations on social and environment practices under the Principles, including the enhanced disclosure that is expected to become typical market practice, is likely to catalyse continued activism in relation to these issues.

iii Modern slavery legislation

The Modern Slavery Act 2018 (Cth) (Commonwealth Act) commenced on 1 January 2019. Among other things, the regime requires organisations with annual consolidated revenue of at least A$100 million to publish an annual modern slavery statement that contains information about the modern slavery risks in their supply chains, and their due diligence and remediation processes to assess and address those risks. Companies are required to prepare their first modern slavery statements in respect of their first full financial year commencing after 1 January 2019. Normally, a company has six months after the end of a financial year to prepare and file a modern slavery statement, although in light of covid-19, a special three-month extension has been granted to reporting entities with a financial year ending on or before 30 June 2020.

In parallel, the Modern Slavery Act 2018 (NSW) (NSW Act) is currently anticipated to commence by 1 January 2021. The NSW Act provides for a similar obligation for commercial organisations (other than those covered by the Commonwealth Act) with an annual turnover of A$50 million or more to prepare a modern slavery statement on the steps taken to ensure that their goods and services are not produced in supply chains in which modern slavery is taking place. The NSW Act also provides for the creation of a publicly available register that identifies organisations whose goods or services are or may be produced in supply chains in which modern slavery is or may be taking place.

Modern slavery legislation will improve reporting standards in relation to human rights risks, which is currently a focus for shareholder activists. At this stage, it is unclear whether the increased disclosure on these issues will take the heat out of related activism or whether the transparency will prompt the targeting of slow adopters for activist action.


As outlined above, the Australian regulatory regime is facilitative to shareholder activism and an increasing number of companies are being targeted by activist campaigns, particularly in relation to ESG matters. We expect that these trends will continue in the future given the current focus on corporate accountability in Australia and the continued public dialogue regarding social responsibility and ESG stewardship. Covid-19, which has generated broader discussions about businesses' role in society, is likely to contribute to this trend.

Activist campaigns are increasingly enjoying the support of institutional investors, as reflected in a number of strong results in favour of shareholder-requisitioned resolutions at recent AGMs. Simultaneous campaigns by separate ESG activist groups targeting the same company are also becoming regular occurrences.

In light of these developments, strategic preparation, self-assessment and challenge remain important tools for pre-empting and responding to activist campaigns. As the experience of a number of companies during 2019 demonstrated, these steps are not silver bullets that will always succeed at preventing activist campaigns. However, companies that take steps to proactively address shareholder activists' underlying concerns will almost invariably be better placed to reach an acceptable outcome and limit attendant reputation risk factors.



1 Quentin Digby is a partner, Timothy Stutt is a senior associate and Barry Wang is a solicitor at Herbert Smith Freehills. The authors would like to acknowledge the assistance of Eloise O'Brien, a solicitor at Herbert Smith Freehills.

2 Australasian Centre for Corporate Responsibility v. Commonwealth Bank of Australia [2016] FCAFC 80.

3 See Australian Council of Superannuation Investors, 'Shareholder Resolutions in Australia' (research report), 2017.

4 See, for example, the case of State Street Australia Ltd in its capacity as Custodian for Retail Employees Superannuation Pty Ltd (Trustee) v. Retirement Villages Group Management Pty Ltd [2016] FCA 675.

5 See, for example, the case of RBC Investor Services Australia Nominees Pty Limited v. Brickworks Limited [2017] FCA 756.

6 Advance Bank Australia Ltd v. FAI Insurances Ltd (1987) 9 NSWLR 464; 12 ACLR 118.

7 Market capitalisations presented as at 19 June 2020.

8 Activist Insight, 9 April 2019.

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