 Why
do shareholder action groups get started? There can innumerable reasons, but
they usually start with some complaint about the actions of directors of the
company, or of other shareholders (typically dominant ones or major
institutional holders), or exceptionally of the government. Examples of the
latter were of Railtrack where it was to be taken back into government
control at a cheap price, or Northern Rock which was nationalised - see the picture right taken at a UKSA
sponsored meeting on that subject.
As private
shareholders, you are not only not likely to be consulted about important
matters that affect the value of your shareholding before a decision is
taken by the board, you may not even be told about it in a straightforward
and timely manner. Attempts may be made to conceal the true facts from you,
and simple enquiries may be met by a stone wall of silence from the company
directors. When you raise an issue, you are likely to be fobbed off with
feeble excuses unless you hold a major chunk of the equity, even if the
board are clearly being foolish or incompetent. The bigger the company
the more "folie de grandeur" prevails, as can be seen by the examples of
British Gas and Marks and Spencer in recent times. But the smaller the
company, the easier it is for actions to pass unremarked in the financial
press (see Emess in the Companies list for an example of this).
Shareholders who
hold a significant percentage of the voting rights with major influence on
the board may propose actions such as disposals, acquisitions, delisting,
market listing transfers, rights issues or other actions which are
prejudicial to your interests. Or they may combine with large institutional
shareholders to provide a quick exit for the latter with little regard for
the interests of other shareholders.
In total, there
are numerous ways you can be screwed when the board and other shareholders
do not have your interests at heart! Company law gives you some protection,
but as an individual shareholder it is neither practical to use, nor
economically viable to invoke, in most circumstances. This is why you need to
combine with other shareholders. By forming a group you can raise awareness
of the issue in the public and the media (always a good step to getting the
attention of the board), and combine your efforts with other shareholders to
achieve your objectives.
Note that action
groups are not necessarily formed solely in opposition to the wishes or
actions of directors. Sometimes they are supportive of management who may be
harassed by institutional shareholders with shorter term objectives, or by
other external forces. In other cases boards fail to gain the support of
smaller shareholders because of poor communication or simple lack of
understanding of their point of view and a shareholders group can actually
assist the communication process and help to gain shareholder support for
necessary steps in the development of a business.
How does UKSA support
action groups? Support can range from simple advice on how to set them up,
through the formation of UKSA "sponsored" groups to "affiliation" for
prospective larger or existing groups. See the following document for more
information: Shareholder_Groups.
Note that this is and the following are PDF documents and you will need the
Adobe Acrobat reader to read them (see note in right margin).
To read a
document which is well worth digesting on the subject of shareholder action
groups, click on the following link:
Organising A Shareholders Action Group. This
note was written by lawyer David Greene and provides a good overview of the
legal issues involved. However there is probably an over-emphasis on the
need for formality in organising an "action group" as usually there is some
urgency on getting the ball rolling, but no clear path forward - it then
often depends on the drive and enthusiasm of a few individuals who can act
as informal leaders in the beginning, with formal organisation coming later.
Obviously the degree of formality necessary also depends on the size of the
action group, the size of the company of which it is the subject and the
nature of the problem. Some action groups may be tackling a temporary
problem, or may be raising an issue than is easily resolvable. Whereas other
action groups may require a more formal constitution from an early stage as
they may need to pursue expensive legal proceedings. |
