Boards under attack from activist funds

Shareholder revolution is on the rise as the ranks of activist funds swell, unleashing a torrent of campaigns against poorly performing and vulnerable company boards.

Alex Waislitz's $50 million Thorney Investments (via a backdoor listing with Wentworth); Sir Ron Brierley's Mercantile Investments; and Gabriel Radzyminski's $100 million Sandon Capital are a few of the new kids on the block.

The likes of Geoff Wilson's WAM (which is fighting Australian Infrastructure Fund), Gary Weiss' Ariadne (versus Hillgrove) and Gavin Solomon's Metals Finance (against Bass Metals) were already in the space. As were a swath of smaller dissident groups shaping up to the likes of Midas Resources and Galilee Energy.

In the meantime, in a delicious irony, Robert Millner's Soul Pattinson has ramped up its campaign to toss out the board of Dart Energy despite, at the very same time, repelling efforts by Matt Williams at Perpetual and Mark Carnegie to bust up their own controversial cross-shareholdings, which have for years entrenched Millner family control of Soul Patts and Brickworks.

The moral high ground is a contestable battlefield indeed.

There will be more activism in the works. Despite the corporate reformation that has spawned a new generation of value plays, and this year - thanks to the press and proxy advisers - kept the pace of executive pay in check, shareholders are still blessed with powers that they too infrequently use.

Auditors, for instance, are rarely challenged at annual meeting time - failing executives are too richly rewarded, underperforming boards all too often re-elected and institutional investors - they with the most power - still tend to vote with directors or do the "Wall Street walk" by selling and leaving rather than driving reform.

Still, corporate governance is getting better and the rise of proxy advisers and a decade of shareholder class actions have played their part.

Alongside the activism, the incidence of Section 259 notices has exploded - that is, requisitions for a shareholder meeting and a vote.

Some, such as Quantum Pacific's tilt at Intrepid have been batted away (though Quantum may have another run yet) and some, such as the move by ERM Power against the board of Empire Oil & Gas have won the day.

The latter, the most gruesome stoush in corporate Australia, is a welcome victory for shareholders in general.

Late on Friday, Empire chief Craig Marshall finally waved the white flag. Ahead of what promised to be a tumultuous shareholder meeting, requisitioned by ERM, to roll the board, Marshall and two Empire directors stood down. They leave a trail of destruction in their wake.

Armed with a secret indemnity from the company, Empire directors had threatened HotCopper and a swath of their own shareholders with defamation suits. Three of these had made it to court at a heavy personal cost to the small shareholder defendants who had criticised the company in the online chat forum.

Moreover, the Empire actions had been followed by a slather of other director defamation suits against shareholders - presumably most if not all of them financed by the companies themselves. This is nothing short of a crisis for shareholder democracy in Australia, which relies on the free flow of information and open debate.

As part of a settlement with ERM, Empire directors Craig Marshall, Neil Joyce and Bevan Warris "will use their best efforts to end the defamation proceedings on a walk-away basis that is, each party would pay their own costs. No further defamation proceedings will be brought on the basis of 'concerns notices' issued to certain shareholders and others".

Empire had even threatened the Australian Shareholders' Association with defamation. The ASA, it should be said, has also picked up its game in the past two years, contributing a stronger voice to critical matters of corporate governance.

And now, in this final week of annual meeting season for 2013 - where some 600 annual meetings will be held around the country - the ASA's Stephen Mayne has demonstrated this newly fearless approach by naming Gerry Harvey as "one of the worst franking credit hoarders in Australia". The critique is a tad brusque for Harvey, a man who has created so much value for shareholders over his long career, but it does get the message across nonetheless.