Governance & Compliance 9: When shareholders go on the offensive

Will Chalk:

Hello and welcome to Ashurst Legal Outlook and the latest in our series of governance and compliance-focused podcasts. My name's Will Chalk and I'm a partner in Ashurst Corporate Transactions practice focusing on governance. You're listening to a special series tackling our view of the top risk-related priorities for Boards in 2026.

In each episode, we explore a major risk, trend or opportunity commanding attention when setting board agendas this year.

Our next topic covers the issue of activism, particularly shareholder activism and what Boards can do about it. To help unpick the issue as much as we can in what's supposed to be a relatively short podcast, we've got two of the principal authors of our shareholder activism Board Priority.

Specifically, we've got Harry Thimont, one of our corporate partners based in London, who has a strong focus on UK public companies and broader capital markets work, including takeover and activist events. And Miriam Kleiner, also a corporate partner based in Sydney, who has a particular focus on governance and exec rem. Poor Miriam's got a cold, so we really appreciate her joining us today.

Okay, let's jump in. Look, Harry, it's a vast area, but what are the trends you'd highlight from the last 12 months in the UK?

Harry Thimont:

Yeah. Thanks, Will. Great to be joining you and Miriam today. I think there are probably three main trends that I'd highlight in a UK context. I think, first, gone are the days where companies prepare for shareholder engagement at a handful of set-piece events throughout the financial year, or put another way, there's no off-season so to speak. And companies that fail to engage with their shareholders in a meaningful way throughout the year, could well find themselves with their backs against the wall when these set-piece events do come around.

I think secondly, as M&A activity rebounded in the UK in 2025, so did M&A-related activism. And I think one of the interesting features of this sort of activism in the current climate is that, where we see shareholder dissent, it's not purely focused on price: invariably, shareholders will always want a higher price for a company that they own. Instead, where I think we've seen some success on the part of activists is in highlighting that the process in eliciting the price that's been put on the table has not been sufficiently robust.

Now, historically in the UK, it had been quite challenging for public companies that were looking to elicit offers to conduct meaningful price discovery with a pool of potential purchasers. This was due to restrictions in the UK Takeover Code. However, some of that has now changed as a result of some now-not-so-recent rule changes that have granted greater flexibility to management teams and boards of directors that are looking to conduct sale processes in private.

The effect of this is that there are an increasing number of private sale processes resulting in UK public companies being taken over, albeit with the added effect that shareholders are asking more probing questions over the process that was run and by which a particular purchaser was sourced.

And then finally, activists themselves are not free from their own pressures. 2025 was a year of regulatory upheaval in many ways, but globally, stock markets performed pretty well and in some cases reached record highs. You'll have seen that the FTSE 100 crossed 10,000 points for the first time in early January this year.

And navigating these markets is clearly challenging, as is differentiating yourself from not only your competitors, but also passive investment funds whose management fees are invariably lower.
So what's the effect of this? It won't be uniform, but no doubt that there are some activist funds that are under a degree of pressure to deliver appropriate levels of returns and who are therefore adapting their tactics accordingly.

Will Chalk:

That last point's a really interesting one. I suppose it just underlines our thought process when we're helping clients, maybe on the other side of an activist campaign: always put yourself in the shoes of the person who's corresponding with you, engaging with you, and ask yourself what the reasons for that are.

Miriam, generalising massively, as in the UK, perhaps unlike the US, Australia's a relatively benign environment for activists. And by that, I mean there are relatively low barriers for activists to surmount in order to undertake a campaign. What are the trends you'd pick out in Australia in the last 12 months?

Miriam Kleiner:

Thanks, Will. So in Australia, we saw shareholder activism remain a potent force. We saw a surge in climate- and nature-related requisition resolutions, and also a record number of Board seats being secured by activists, particularly in the first half of the calendar year. We also saw intensified scrutiny on executive remuneration.

So campaign volumes stayed fairly steady, so activist campaigns were roughly the same number as last year, but they've actually been more successful, particularly through settlements with Boards.

Will Chalk:

That's interesting. Exec rem certainly was an area of increased activism in the UK last year, albeit that's relative to, I think, what were in fact historic lows in 2024. Climate-related resolutions really haven't taken off in the UK and perhaps that's due to the fact that we've had, I think, a slightly longer established regime of climate-related reporting, which may have, in some people's minds, scratched the itch of making sure that there's enough information out there on that in the UK.

Were there any standouts in terms of matters from activists which dominated discussions?

Miriam Kleiner:

Yeah. So unlike the UK, we're just about to have, over the next few months, the first round of mandatory sustainability reporting. So last year we still saw climate and nature matters really dominate AGM discussions with Australian major banks and resource companies facing sustained pressure to provide credible transition plans rather than just mere pledges.

So we had some activists pushing for specific disclosures, including what we call say-on-climate votes, at firms like Rio Tinto or Santos. And they received strong support. So we're seeing increased support for those activist resolutions.

But a real standout development was the rise in successful outcomes for activists seeking board seats. So in the first half of 2025 alone, activists won 16 board seats, seven by vote, nine by agreement with the Board, which was a significant increase for the same period in 2024.

Will Chalk:

And as we've discussed in the past, you've got your two strikes and a board spill regime. I think I've got that right. Does that have a practical impact?

Miriam Kleiner:

So yes, that's right. It does. It's quite a unique rule. I don't believe there's anything quite like it in other's rules.

So just for our listeners, a short description, Australia has a rule which requires a remuneration report to be put before each annual general meeting. If 25% of shareholders vote against that report, that is considered strike one. If in the following year you get another 25% voting against that year's report, that is strike two. At that point, the Board is forced to put forward a spill resolution at that meeting, which is asking shareholders to vote on whether or not a new meeting should be held in 90 days of the current meeting to spill the board, essentially. That has never happened bar one instance that I can think of. And mostly it's because the two-strike rule is not actually about upset with remuneration, it's a way for people to indicate they're upset about other things. So it does have a practical impact because Boards are basically scared to suffer too many strikes and have the media report on that.

As I said, the legislation is not being used as intended. It's nothing to do with remuneration, and you can see that when we often have two or more remuneration-related resolutions going up at an AGM and a strike will be had on the rem report, but the other remuneration resolution passes with 90-plus per cent in favour.

So it's just a way to let Boards know somebody's unhappy. And although there was a slight decrease in the total number of remuneration strikes compared to 2024 year, willingness to vote against pay packages remained high.

And we saw that particularly with founder-led companies, which we think is an instance of shareholders being unhappy with potential governance arrangements. In the last year, we had five remuneration strikes recorded, which is 10% of ASX 300 AGMs held during a period, and three of the five strikes recorded during that half, three were very severe. So 70-80% against were at companies where the founder is still setting the tone.

Will Chalk:

So with that scene setting from both jurisdictions done, Harry, what's your advice for the Board of a company with a known activist on its register?

Harry Thimont:

Well, at the risk of answering a slightly different question, we might start even before an activist comes onto the register and the steps Boards should think about in preparing for a potential campaign. And the reason I say that is because, in the current climate, activism is no longer focused on a handful of companies of a particular size or in a particular sector. In my view, public companies of all stripes could, at some point, become the subject of an activist campaign.

So what are the steps that Boards should think about? I think, one, vulnerability assessments. What are the areas of perceived weakness that an activist shareholder may seek to exploit? Could they be capital allocation, operational inefficiencies, for example? Is the group getting the benefit of having multiple divisions of business under one roof? Is there a break-up premium? Governance weaknesses can also be a target. And focus should also be on the areas of strength and the key messages that the Board wants to deliver and to get into the public domain should a campaign of this nature start. Likewise, understanding which institutional investors may support management and which may be on the side of an activist is also critical intelligence during the course of a campaign.

Secondly, Board readiness. Invariably, experience of shareholder activism will probably vary across board members, and I think ensuring that all directors are briefed on the investment thesis and are well-equipped to engage with shareholders, generally, is important. And likewise, recognising the toll that campaigns can take is also critical in ensuring that insofar as possible, the Board remains intact as one and speaks with one voice throughout the campaign.

One of our roles as lawyers in these situations is to ensure that Board members are fully briefed on their duties and responsibilities, but also are fully aware of the protections that they benefit from, whether it be D&O cover, company indemnities, etc. I think that's really important in enabling a board to act uniformly, to act as one, and more generally to discharge their duties in these scenarios.

And third, shareholder engagement. And I touched upon this earlier. This is a more obvious point, but proactive shareholder and stakeholder engagement throughout the annual cycle is one of the best defences. It is not enough to wait until a campaign begins and simply to expect your major institutional shareholders just to fall into line and support the Board, support management.

Now, turning to the question you actually asked. The reality is that every campaign is different and there is no one-size-fits-all approach in terms of how to handle one. I think the key thing is having the right response infrastructure in place.

So internally, who will be the core team handling the response and who of your advisers will you be picking up the phone to? Legal advisers, financial advisers, brokers, comms, proxies, solicitors are all likely to play some role during the course of a campaign, and having clear established protocols will also be hugely helpful in ensuring a well-managed and, as far as possible, efficient campaign.

Will Chalk:

Isn't it also important not to immediately jump into an 'us against them, it's the Board against the activist' mindset?

Harry Thimont:

Absolutely. I think shareholder activism has traditionally been associated with battle-like jargon, and I've used some of it in this podcast, waging campaigns as if every activist is sort of a 'barbarian horde'. The reality is they are not, and as a Board, it is important not to treat them as such, to avoid ultimately a self-fulfilling prophecy which ultimately does result in a battle of sorts.

Shining a light on governance practices, strategy, capital allocation, etc., that's not a bad thing. And therefore, being receptive, engaging in constructive discussions can result in an outcome which not only avoids a potentially prolonged and draining campaign, but actually has genuine upsides for the company and its shareholders.

Will Chalk:

I think, Miriam, Harry's won a bet with himself to get the expression "barbarian horde" into the podcast. What are your thoughts on what Harry said and your advice?

Miriam Kleiner:

Yeah. Well, I agree very much with what you said, Harry. I guess it's engage early and know the activists. So establish the tone and approach to any conversations you're going to have. And really, if it's all managed properly, there should never be a surprise for the Board because you're managing your register, you're constantly on top of it, you're constantly talking to shareholders.

So continue to speak to other stakeholders and ensure that your Board is aligned with that approach. There's nothing worse than one director going off script.

And I think importantly, you have to remain focused on the business, so don't take your eye off the ball. There have been situations where, of course, it can be incredibly disruptive for a business to have a hostile activist come in, but it's really important that you don't take your eye off that ball.

Will Chalk:

And that's a really key point, because ultimately, going back to what we've been saying earlier about what the activist's motivations are, it may just be to take your eye off the ball and therefore to impact on performance which makes the second stage of the campaign, not that you'll know what that might look like at the time, that much more successful.

Miriam, thanks so much for battling through and thanks to you as well, Harry. And thank you all for listening to this episode of Ashurst Legal Outlook. To listen to more episodes in this Board Priorities mini-series, just search for Ashurst Legal Outlook on Apple Podcasts, Spotify or your favourite podcast player, and please visit our Board priorities home page and read more about our top priorities for Boards in 2026.

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I'll be back soon with the next episode in this Board priorities mini-series. Until then, this is me, Will Chalk, saying thank you very much for listening, and goodbye for now.