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07 October 2019 • Articles

The Deal

CorpGov: Shareholder Activism in Australia Requires a Softer Touch

Shareholder activism is expected to continue to pick up steam over time in Australia, but not in the form it takes in the U.S.

Maria Leftakis, CEO of Morrow Sodali (Australia) said Elliott Management Corp. succeeded in getting changes at BHP Billiton Ltd. such as weighing an exit of its coal operations and take a look at dividend payments and share buybacks, but not by aggressively demanding them right away.

"Elliott spent a lot of time talking to the board and institutional shareholders," Leftakis said. "They were more like an active shareholder rather than a shareholder activist. It's difficult to force change in what could be considered one of their most iconic companies."

With only 30 million people and a smaller economy, publicly traded companies and their boards in Australia have interlocking board members. While a shareholder activist may be raising good points about improving a company, board members and even shareholders in the country often consider their social network before criticizing management or voting against them.

On the other hand, board members are sensitive to shareholder concerns; also Australia has a large contingent of retail investors that can be reached through the media.

"Retail investors are very engaged," Leftakis said. "You need to tap into their sentiment. There's an attitude of loyalty to the company and resistance to foreigners. You have to understand what's driving retail sentiment and what levers you need to pull to get their support."

Jeffrey Pierce, managing partner of Snow Park Capital Partners LLC said his firm launched a proxy battle in 2011 at an Australian real estate company. Institutional shareholders were urging Snow Park to take action because of problems at the company. But when it came time for a vote, the proxy proposal drew only 30% support.

"We ran into a buzz saw of people worried about their connections," Pierce said. "The social issues complicated the transaction."

Despite the setback, changes did end up taking place at the company, he said. The company ended up getting sold, which his firm supported, for example. "Our efforts may have prompted some behind the scenes actions," Pierce said. "After the vote, it was also easier for us to meet with directors."

Elliott's success with BHP hasn't had a huge impact on shareholder activism efforts at other companies, but it did show larger institutional investors in Australia the potential impact of such efforts, Pierce said. BHP is a much more international company than many other listed businesses in the country, so it stands out as a different animal from a shareholder activist perspective, he said.

"Overall I'm not sure it was a sea change in terms of the ability to do business differently down there," Pierce said. "As the country grows, and the public markets grows, the shareholder base will diversify. I would expect it to look more like the U.S. some day but we're still far away from that."

The comments by Pierce and Leftakis came during the panel, "Spotlight on Australia", at The Deal's Rise of Shareholder Activism in Asia Pacific 2019 conference in New York City on Thursday, Sept. 26. The panel was moderated by Lisa Botter, London Bureau Chief of The Deal.

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