Times are changing, and shareholders are now playing a more prominent role in shaping corporate behaviour. Activist shareholders are increasingly pointing out issues including environmental, social, and governance (ESG) considerations.
Shareholders have become increasingly cognisant of matters pertaining to remuneration policies, transparency considerations, and the implementation of sound corporate governance practices. It is of the utmost importance for companies to exercise prudence and avoid underestimating the potential ramifications of shareholder activism.
Shareholder activism mechanisms under the Companies Act include:
Section 161, which entitles shareholder (i) to apply to court for an order determining its rights, (ii) to apply for the necessary protection of such rights or (iii) to apply for rectification of any harm done to that shareholder by the company or director (as a consequence of an act or omission that violated any such right or contravened the Companies Act or the memorandum of incorporation)
Section 163, which provides, for relief from an oppressive or unfairly prejudicial act or omission by the company or related person that unfairly disregards the interests of the shareholder
Section 164, which provides for appraisal rights that allow dissenting minority shareholders to require the company to purchase such dissenting minority shareholders’ shares at fair value, in circumstances where the shareholders of the company pass a special resolution to amend the rights of a class of shares in terms of its memorandum of incorporation or to undertake a fundamental transaction.
Section 165, a shareholder (and other stakeholders such as trade unions and directors) may bring proceedings in the name of and on behalf of a company to protect the legal interests of the company through a derivative action.
Section 159 creates protection for shareholders who disclose information to the relevant regulators where the shareholder reasonably believed at the time that the company or a director had contravened the SA Companies Act; failed to comply with a statutory obligation; engaged in conduct that endangered or harmed an individual or the environment; unfairly discriminated against a person; or contravened other legislation that could potentially place the company at risk. shareholder activists seeking to hold the board accountable for their conduct.
The King IV report encompasses various corporate governance principles, a substantial portion of which are dedicated to matters concerning shareholder rights and engagement.
The adovating for the imperative that boards of directors take proactive measures to encourage shareholder participation in general meetings, and further, suggests that boards should foster engagement with shareholders through diverse channels including online platforms, advertising initiatives, and press releases. It is worth noting that companies listed on the Johannesburg Stock Exchange (JSE) are obligated to adhere to the stipulations outlined in the King guidelines, in accordance with the JSE listing requirements of 2017.
Companies should take heed and not underestimate the potential impact of this growing wave of shareholder activism. Those who fail to adapt to these changing dynamics may find themselves facing informed and empowered activists armed with regulatory rights and protections.
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