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agency conflict, between shareholders and directors or management. Lack of active participation of shareholders in corporations has been blamed for poor corporate governance.
The legal identity of a company, coupled by separation of ownership and control, causes the role of shareholders to be overshadowed by that of directors and management. Thus control takes the limelight from ownership.

To remedy this, company law gives investors, as owners, certain rights such as appointment of the board of directors. Directors as agents of the owners, in turn have the responsibility to oversee the day to day functioning of the entity. Accountability of directors to owners is provided for at general meetings, for instance, where the shareholders also exercise their rights through voting and approval of financial results including dividends.

The prospect for investor activism comes about, when the actions of directors are deemed unsatisfactory by the owners. When shareholders believe that the board of directors has failed to execute its duties to protect value, owners may either exit, voice or remain loyal. Activism is a gear up from standard shareholder rights and responsibilities. Through a broad spectrum of activities, including exit from the company by selling off their shares, also known as “voting with one’s feet”, shareholders assert their power as owners to influence company behaviour.

Investors may also voice their dissatisfaction through for instance, private discussions or public communication with corporate boards and management, press campaigns, blogging and sometimes even naming and shaming. Shareholders or investors, may openly talk to other shareholders, call extraordinary shareholders’ meetings, and eventually seek the replacement of individual directors or the entire board.
The third option for dissatisified investors is to remain loyal and simply decide to watch and keep silence. Needless to mention that silence has been the most common form of activism, globally until recent years.

Hence the perception that lack of shareholder participation is partly to blame for poor corporate governance. Shareholder or investor activism is gaining momentum. The current financial squeeze is causing investors or shareholders to squeal, more than before as they try to wield their authority in securing their investment value.
Actions by Van Hoogstraten at both Hwange Limited and Rainbow Tourism Group (RTG) in Zimbabwe are an example of shareholder activism. As may be recalled the shareholder’s interventions were not smooth going. Activism is indeed controversial. In the UK, the Pension Investment Research Consultants, PIRC, is dedicated solely to advising institutional investors on corporate governance issues. PIRC has advised owners on specific issues such as re-appointment of directors.

Earlier this year, following revelations of the phone hacking scandal at NewsCorp, PIRC questioned the suitability of James Murdoch as a senior executive and potential successor to his father, the chairman and chief executive, Rupert Murdoch.
PIRC advised shareholders to oppose James Murdoch’s election as well as the re-election of nine other directors due to concerns about their independence, at the AGM.
However, similar attempts in the past by PIRC to block the re-election of Murdoch were unsuccessful.

The BSkyB’s board was unanimous in supporting James Murdoch, after the company announced it would return GBP 750 million for shareholders and the full year dividend by 20 percent.
In July 2009, at its AGM, the British retailer Marks and Spencer faced heavy opposition from its shareholders over Sir Stuart Rose’s dual role as chairman and chief executive. In concert with PIRC, the Local Authority Pension Fund Forum, which represented 49 pension funds with combined assets of over £75billion, put forward a special resolution requiring the company to find an independent chairman to take over from Sir Stuart in July 2010.

As expected, votes in favour of the resolution fell well short of the 75 percent majority required to pass it, but at 37,7 percent support for the resolution, it was considered a very strong showing for a company like Marks and Spencer. Sir Stuart claimed it as a win, but soon after, the company’s deputy chairman announced that a new chief executive would be appointed in 2010 and that Sir Stuart would step down as chairman before July 2011.

Subsequently, Marc Boland was appointed as the new chief executive in May 2010. The announcement was made in November 2009 and The City welcomed the appointment, sending shares in Marks and Spencer rising more than 5 percent to 386pence and raising its market capitalisation by £284 million.
Sir Stuart continued as a part-time chairman to ensure smooth transition. He stepped down from the chairmanship early this year and was replaced by Robert Swannell. Had the investors of Marks and Spencer not acted decisively and voiced their concerns about poor governance as represented by the dual role of chairman and chief executive, the company would not have enjoyed financial performances as indicated above.

It is clear that like all great arguments, activism has two sides and two positions, depending on whether an individual is in favour of these actions or against the actions.
Thus proponents of investor activism believe that it provides the necessary demand on corporate governance and control of companies. This highlights the fact that corporate governance is like a moving target constantly requiring re-visioning and reminding.

As the private and the public sectors as well as development agencies, seek solutions to the financial crises, investors can no longer, place their money in companies and dose off, hoping to wake up and find a dividend deposited in their bank accounts.
“I see a shift from charity to investment, and that is a good thing”. The Dutch Minister for European Affairs and International Cooperation, Ben Knapen, said these words when commenting on the new policy on development cooperation, where the European Commission endorses the role the private sector plays in development. Boards and management in organisations must now prepare themselves for more active participation in decision making by investors, and when necessary, through activism.

Various researches show that companies with active and engaged shareholders are far more likely to succeed and be successful in the long run than those companies that have quiescent shareholders. Those that are against activism say that it is disruptive. Some have gone on to describe it as an extortion scheme that weakens strong companies.
Although in recent times it is deemed as a corporate governance operation, activism has its origins in social reform pursuits. Environmentalists are an example of social activists, who influenced corporate behaviours, in the oil, mining and other extractive sectors. While their opponents may argue that environmentalists are noisy, and sometimes look like gypsies, social responsibility and triple bottom line were results of this social activism.

It will be interesting to watch the reforms if any that will succeed the current “Occupy Wall Street” in the US and similar protests in Europe and South Africa.
Perhaps the message that should be remembered from these “noisy” bunches is that society is where the money comes from. Pension funds and in some countries, the workers unions, are among are the heaviest institutional investors in private sectors include stock exchanges. These are people’s monies.

Individually these activists may not amount to much, but collectively they are movers and shakers. Such as in the example of the now celebrated corporate citizenship and social responsibility, which started as heresy and nuisance, but has now become a mainstream governance activity?

The actor Sean Penn, one of the supporters of “Occupy Wall Street”, reminds us that principle is a strategy. As such, any shareholder considering a more activist role must be guided by sound principles. It must not be noise for the sake of being heard, but rather in pursuit of good for the company and investment.

Sensitiveness to certain business dynamics such as investor confidence and in the case of Zimbabwe, the delicateness for example the tourism sector, must provide the necessary background knowledge to shareholders as to what option they should take, exit, voice or remain loyal. The recent contradicting statements by Zimbabwe Government officials, as representatives of the shareholder in the Rainbow Tourism Group are a case in point.

Investor activists are therefore advised to first ensure that they have a sound understanding of the environment, the company and its business. Activists need to appraise themselves with the regulatory framework in which they will be operating, as well as ensure compliance with applicable regulatory regimes.

Shareholder advisors warn activists to be cognisant of the repercussions of taking on such a role, which include reputational issues of being associated with activism, and the financial cost of activism. It should be remembered that it is usual that the benefit of an individual investor’s efforts will be shared by all shareholders, although the legal costs may be borne by a few or even one.
Investors are business people, therefore shareholder value and returns remain key factors. Options must be weighed in line with cost-benefit analyses. Simpler options such as selling underperforming and unethical investments thus are considered as well.

Due to the increasingly public nature of shareholder activism, it is important for both the board of directors and the activist shareholder to have appropriate legal advice together with sound investor and public relations strategies.

Boards and management should not always trash shareholder activism, but view it as a necessary bitter pill for the good. Chairpersons that hold executive positions will have to remember the Marks and Spenser case study above.

Encourage good governance, even if sometimes it seems like you are losing, for good governance comes around. A shareholder advisor recommends the following checklists for prospective shareholder activists;

• Be clear with what you want to achieve and how will you achieve it.

• Who are your fellow shareholders?

• What are the positive and negative repercussions of activist behaviour?
• Take legal advice.

• Consider legal actions as a last resort as they are unlikely to have an immediate effect and can be costly.

• Engage experienced professional advisers and have a well-organised public relations strategy in place early in the process.

Therefore there is a need for more visible shareholder advisors in Zimbabwe and the rest of Africa.
The indigenisation and empowerment processes, which are cascading to communal folk, will bring about uninformed shareholders in externally listed mining giants such as Zimplats.

• Gertrude Takawira is a researcher and consultant in governance.