Activist shareholdership – will paying peanuts save monkeys?

Last month, the website of the Flemish newspaper De Morgen published an article with the headline "Improve the world, buy a share". The occasion was the fact that the animal rights organisation GAIA wanted to buy one share in the fast food chain Quick. In recent years this phenomenon, the so-called activist shareholdership, has cropped up quite often in the media. A question that often goes unexplained is precisely what the activist shareholder is buying with his one share. As noted in De Morgen, GAIA for example "will have (virtually) no say in things".

Below we´ll look briefly at the extent to which (virtually) no say in things is correct. The analysis is limited to the rights of a shareholder in a Belgian naamloze vennootschap [limited liability company], independent of any particular aspects specified in the articles of association and ignoring the patrimonial rights.

If an activist shareholder buys just a single share, there isn´t a lot he can do with it. Like every shareholder, he is informed before a general meeting. However, the information he receives in this way is generally also publicly available. Other information remains inaccessible. Activist shareholders are interested above all in large companies, where the examination and audit authority lies in the hands of the statutory auditor, so that they cannot be exercised by individual shareholders.

More important is the fact that one share gives the right to be present at the general meeting, where one can vote and ask questions. An activist shareholder will have his sights set above all on that last point. Moreover, in principle directors are obliged to answer such questions. A share thus gives a megaphone at the general meeting.  

Nevertheless, the right to pose questions and demand answers is not unlimited. The shareholder, on the one hand, must adhere to the agenda of the meeting and he may not abuse his right to ask questions. The directors, on the other hand, can only answer in so far as their duty of discretion and the company interest permit it. So, although an activist shareholder can take the floor, it can also often reasonably be taken away from him again. In the best case, therefore, the activist shareholder can (try to) influence the voting behaviour of the other shareholders.

In order to give his participation real teeth, the shareholder would have to bring it up to the level of 1%, since a 1% shareholder has the right to file a minority claim against one (or more) director(s) and to demand an examination by an expert in company law. An activist shareholder would thus be able to expose particular abuses within the company and hold specific directors liable for them.

Without publicity, this too accomplishes little. The expert examination will in the best case confirm what was already proclaimed earlier and if a director is ultimately found liable, he will usually pay a compensation for this… to the company. In any case, 1% shareholdership isn’t an option financially for most non-profit organisations. The price that one would pay can be used to generate much more publicity in other ways.

Essentially, the great added value of an activist share is thus no more than an admission ticket to a shareholders´ forum. It makes it possible to bring the demonstrations held outside the door indoors, if only for a moment – and now and then to make it into the papers.

For more information on this particular topic, you can consult Joost van Riel (author) and Gwen Bevers (head of department).