The rising tide of shareholder activism has brought a new tension to the markets as companies struggle to defend and justify themselves. Shareholders brace for impact. Directors’ and senior managers’ behaviour and judgement are under particular scrutiny. Reputations hang in the balance.
Well, fair enough. That’s share market democracy for you. Transparency is an indispensable part of efficient investment markets. It’s why our corporate leaders generally don’t complain too much. Generally the best response is to quickly focus on dealing directly with the activist’s issues by addressing their concerns or explaining to shareholders why the criticism is not valid.
The activist casus belli aside, a company faces a battle of information asymmetry as regulators insist on the highest standards of corporate disclosure applying only to them – the Company. Their activist critics seemingly attract little or no regulatory oversight.
For ASIC and ASX it is much easier to regulate the corporate and listed company behaviour – a fixed target. But shareholders also have the right to invest in a marketplace that is properly informed and surely that also covers the inaccurate or spurious claims of the activists. The sad reality is that along the outer flanks of this ‘information war’ – like the rantings on ‘Hot Copper’ – are more akin to guerrilla activities where the atrocities are barely constrained by the laws of defamation.
But this is not a criticism of activists and shareholder activism. Far too often companies (meaning directors and C-suite managers) bury mistakes and try to hide their self-interested actions. ASIC and ASX do their best to pull back the corporate veil and let the light in.
And we should recognise there are two distinct sorts of activists – even if both are self-interested.
Take the recent activism by Elliott against BHP and Glaucus’ exposé of Quintis. In both cases the activist was transparent and detailed in their claims and prepared to answer for them.
The other kind of activist raises many more questions for ASIC and ASX. Central Petroleum recently defended hostilities from two shareholder groups both, separately, calling for the replacement of the directors. One of them, called OptionCo initiated a 249D action to remove the board. For much of the time the Central directors and management were also managing a takeover proposal cum Scheme of Arrangement from the Macquarie Group.
This left the directors with the worst kind of communication challenge to keep shareholders properly informed while also facing, from some quarters, unrestrained, vociferous and anonymous critics facilitated by social media channels, notably Hot Copper. The OptionCo manifesto for grabbing control of Central promoted a program that was vague, uninformed, unrealistic and misleading to shareholders. And when activism gets warmed-up Hot Copper’s anonymous experts spread anything from unrestrained allegations of malfeasance to dead certainties apparently sourced from fairies at the bottom of the garden. So, as the directors face being overwhelmed by personalised vitriol and misrepresentation somehow the only obligation for accuracy falls on the company, but not the activists, and the shareholders right to accurate information is distorted by a one-eyed watch-dog. Too hard for the regulators, that one!
There is no simple answer to the asymmetry of information available in this environment. But the new combination of shareholder activism and social media has exposed a serious weakness in regulatory oversight and shareholders’ reasonable expectations of an informed market.
Martin Debelle
Partner Citadel-MAGNUS
* Central Petroleum is a client of Citadel-MAGNUS.
