14 - Shareholders' rights and engagement Flashcards
6 main sources of powers and rights for shareholders
- Legislation - company laws and securities laws
- Regulations - Listing Rules, DTRs, Takeover Code
- Case Law
- CG codes
- Constitution of company (articles and resolutions)
- Shareholders agreements (regulating certain items)
5 rights held by shareholders
- Ownership and transfer (of shares)
- Equal treatment (as other shareholders)
- Share in the profits
- Receipt of information
- Attend meetings and vote
What % of shareholders can require directors to call a GM?
5% voting share capital
What % of shareholders can propose a resolution to be voted on at the AGM?
5% voting share capital
Example an indirect shareholder/investor?
A shareowner who holds share through one or more financial intermediaries
What is meant by enfranchising indirect shareholders?
Assisting indirect shareholders/investors to become more involved in company affairs and exercise the rights usually reserved for registered shareholders
4 common abuses of shareholder rights
- Market abuse and insider dealing
- Dilution
- Tunnelling
- Related party transactions
3 types of market abuse
- Engaging or attempting to engage in insider dealing
- Unlawfully disclosing inside information
- Engaging in or attempting to engage in market manipulation
3 protections for directors against dilution
- Requirement for authority to allot
- Right of ‘pre-emption’ on issue of new shares
- Right to approve long-term incentive schemes
What is meant by ‘tunnelling’ as an abuse of shareholders rights
When the value of shares held by a shareholder is reduced
5 instances which may cause shares to ‘tunnel’
- Assets are sold or transferred to third parties at non-market prices
- Value-destroying acquisitions and investments are made to help related companies
- Corporate opportunities are exploited by related companies
- Articles amended to give priority to another set of shareholders
- Capital structure is amended to give priority to another set of shareholders
Define related party transactions
Transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged
2 reasons why institutional investors should take an interest in CG
- Investors expect a return on their investment (and well governed companies are less risky)
- Institutional investors have legal responsibilities to the individuals who they invest on behalf of
4 courses of action institutional investors can take if they are concerned about decisions taken by the board
- Voice concerns direct to the company
- Escalate (to wider group of shareholders, perhaps through a representative body)
- Vote (by abstaining or voting against - or proposing their own resolution)
- Exit (sell shares)
Due to the difficulty in organising dissident shareholders to form voting majorities, how does shareholder activism usually take place?
Attracting publicity - brings pressure to bear on companies
What is a ‘wolf pack’?
Shareholders with a common interest (typically institutional) group together to impose their views on a particular company with a view to a short term gain