Question

Although a company is run on the will of majority shareholders, it does not mean that majority shareholders can pass resolutions at their own whims and fancies. The law will step in to protect minority shareholders where their rights and interests are affected. Nevertheless, the uppermost question is whether the current laws governing minority shareholder protection in Malaysia are adequate. Equally imperative is also whether minority shareholders play an active role in keeping a check on the way a company is being run i.e. shareholder activism. Discuss and critically examine the above statement. Include in your discussion, the legal position in the United Kingdom, Australia, Singapore, Canada or New Zealand. The comparison should indicate that the country has adopted a more comprehensive approach in protecting minority shareholders. Please provide citations/references.

Answer 1

Shareholder activism can be defined as an act whereby shareholders voice out their concerns and make their dissatisfaction known in order to influence the policy and practice of a company; and to protect their interest and maximise value through the demand for good governance.

If you see in Malaysia numerous institutional shareholders and their investees are politically linked and interlinked. Due to this fact, the power and influence politics has on the practice and policies of the companies are great. As such, resistance and shareholder activism could potentially be futile, and it can be seen as if there is not much minority shareholders could do except to monitor their investments closely and attempt to sell their shares. This is one such problem faced in shareholders activism.

However, in Malaysia the current legal framework has opened up various avenues shareholders which encourage shareholder activism. For example, under the Companies Act 2016, not only are shareholders empowered to question and comment on the management of a company, but they are also allowed to give binding recommendations on the management of a company. This is provided that such recommendations are in the best interest of the company, allowed under its constitution and given in the form of a special resolution.Further, under the Capital Markets and Services Act 2007 , shareholders are given the right to initiate civil proceedings if they have suffered losses or damages as a result of others acting in contravention of securities laws, breaches of securities offences such as market rigging and  market manipulation.

Shareholder Activism in United Kingdom :

Shareholder activism campaigns in the United Kingdom can be categorised in many different ways. One simple approach is to distinguish between: (1) event-driven activism, where an activist shareholder will seek to assert its influence on a company's current corporate activity, particularly in relation to a takeover or other M&A situation; and (2) strategic or operational activism, where outside a company's current corporate activity, a shareholder activist seeks to address operational performance, the balance sheet or other strategic issues, or some other longer-term concern at a company, such as governance or remuneration. In the United Kingdom, corporate law has always provided a strong basis of shareholder rights from which to challenge directors. This, together with concerted efforts over many years by UK regulators and policymakers to encourage more active shareholder engagement (particularly following the failures identified in the global financial crisis), has resulted in a legal and regulatory framework in the United Kingdom that is arguably the most benign framework for possible activist activities in Europe.

Shareholder activism and engagement is governed by a range of UK legislation.companies Act 2006 (the Companies Act); Listing Rules; Disclosure Guidance and Transparency Rules (DTRs); City Code on Takeovers and Mergers (the Takeover Code); UK Corporate Governance Code (the UKCG Code).

Hence,Malaysia and United Kingdom both  has adopted a more comprehensive approach in protecting minority shareholders.

Refrence https://www.lexology.com/library/detail.aspx?g=6af0bc0e-96cb-4df8-b69d-f537ab9ee298

https://link.springer.com/chapter/10.1007/978-981-287-426-9_32

https://thelawreviews.co.uk/edition/the-shareholder-rights-and-activism-review-edition-4/1197518/united-kingdom

https://www.financierworldwide.com/the-activist-effect-shareholder-activism-in-the-uk#.X10u4mgzbIU