Guide on Shareholder Activism & Engagement: bpv Huegel partner Christoph Nauer, Daniel Reiter (attorney at law) and Barbara Valente (associate), contributed the Austrian Chapter in the 2020 edition of Lexology Getting the Deal Through.
Here you can find the Austrian Chapter:
1 | What are the primary sources of laws and regulations relating to shareholder activism and engagement? Who makes and enforces them?
The main source of law relating to shareholder activism and engagement is the Austrian Stock Corporation Act (AktG), including the fundamental principle of equal treatment of shareholders (in particular, equal voting, dividend and information rights) (section 47a, AktG) and a limited duty of loyalty of the shareholders with respect to the company’s and the other shareholders’ legitimate interests. The Austrian Stock Exchange Act and the Austrian Takeover Act provide provisions applying only to compa- nies whose shares are admitted to stock exchange trading on regulated markets (section 3, AktG) and their shareholders.
The provisions governing shareholder actions are part of Austrian federal law, partially (particularly regarding listed companies) based on EU directives and regulations.
Shareholders can enforce their rights generally in front of the Austrian commercial courts. The competence of the Austrian commer- cial courts is binding and cannot be replaced by, for example, arbitration proceedings. The management of the company is in general personally liable to the company but not to the shareholders if damage occurs owing to a violation or non-compliance with statutory law or the provisions of the articles of association. Regulations concerning listed companies are enforced by the competent supervisory body, the Austrian Financial Market Authority (FMA).
The breach of specific obligations of the management can be pros- ecuted as a statutory offence according to the Austrian Criminal Act, for example, inaccurate or incomplete information with respect to net assets, financial positions or results of operations in certain declara- tions, reports or disclosures.
Companies of certain sectors (eg, banking and insurance) are subject to additional regulations, compliance with which is supervised and enforced by the FMA or EU institutions.
Apart from statutory provisions, the Austrian Corporate Governance Code (CGK) includes ‘comply or explain rules’ as well as recommen- dations. The CGK becomes binding by declaration of commitment. If a company’s shares are admitted on a regulated market in the EU or ECC or if companies’ securities are admitted on a regulated market and its shares are traded on a multilateral trading facility, declarations on commitment or opt-out (in the latter case including reasoning) to a corporate governance code and comply or explain with respect to the rules of the corporate governance code, are mandatory.
2 | How frequent are activist campaigns in your jurisdiction and what are the chances of success?
In Austria, the appearance of shareholder activists and activist campaigns is still a rather new phenomenon. Although the number of active shareholder activists is limited, the number of activist campaigns has increased significantly over the last decade.
The chances of success depend essentially on the shareholder structure of the target company as well as the position of proxy advisers. It is expected that proxy advisers will eventually support the strategies of activist shareholders in Austria, as seen in the proxy fight at Conwert Immobilien Invest SE, where activist shareholders have been supported by proxy advisers. Thus, the candidates proposed by activist shareholders successfully challenged the candidates proposed by the management for the board of directors. Activist shareholders can expect support from other shareholders, provided these can also benefit, and the proposals are reasonable with regard to the company.
3 | How is shareholder activism generally viewed in your jurisdiction by the legislature, regulators, institutional and retail shareholders and the general public? Are some industries more or less prone to shareholder activism? Why?
Shareholder activism is not industry-specific. In general, shareholder activism has not played a very significant role in Austria due to the prevalence of listed companies being firmly controlled by one share- holder or a group of shareholders. In recent years in Austria, real estate companies were somehow the focus of shareholder activism. In our view, however, that cannot be linked directly to the industry. Companies targeted by shareholder activist strategies include, for example:
- Flughafen Wien AG (Vienna Airport) (aviation);
- Conwert Immobilien Invest SE (real estate);
- IMMOFINANZ AG (real estate);
- S IMMO AG (real estate);
- A.T. oil (oil field exploration);
- BWT AG (water technology);
- CA Immobilien Anlagen AG (real estate);
- Wienerberger (construction); and
- voestalpine AG (metal industry).
4 | What are the typical characteristics of shareholder activists in your jurisdiction?
In the rather rare cases in Austria so far, hedge funds have mainly been seen as activist shareholders. However, shareholders of listed compa- nies have started to make more active use of their rights, resulting in higher numbers of opposing votes in the elections of supervisory board members and auditors ,and the rejection of large volume share capital issuance authorities to the management board carrying a right to exclude subscription rights of the shareholders. Activist shareholders must be distinguished from notorious claimants trying to gain leverage by blocking resolutions on structural measures.
5 | What are the main operational governance and sociopolitical areas that shareholder activism focuses on? Do any factors tend to attract shareholder activist attention?
Activist shareholders in Austria tend to focus strictly on profitability and the valuation of companies. Sociopolitical agendas are mainly the focus of non-government organisations, chambers and other organisations.
Shareholder activists focus specifically on:
- corporate structure, corporate strategy and restructuring measures;
- takeover bids;
- management and supervisory board composition;
- the return of value to shareholders (share buy-backs, special divi- dend payments);
- divesture, acquisition, merger proposals;
- the investigation of management actions by a special auditor;
- preventing reaching squeeze-out thresholds; and
- opposing delisting attempts.
In particular, underperformance of the management and – in the case of listed companies – low stock prices (undervaluation) attract share- holder activists.
SHAREHOLDER ACTIVIST STRATEGIES
6 | What common strategies do activist shareholders use to pursue their objectives?
Activist shareholders in Austria apply well-known strategies to leverage their influence beyond their proportionate shareholding through informal measures such as issuing open letters to the management and campaigns publicly voicing their dissatisfaction with the management’s strategy.
However, shareholders also increasingly take advantage of the possibilities provided to them by corporate law, such as to contest share- holder resolutions in court. However, in general, shareholder activists do not primarily intend to block resolutions in shareholders’ meetings by using their minority shareholders’ rights. As common practice, the share exchange ratio of mergers and the squeeze-out compensation are examined in court, however, without blocking the transaction as such.
Depending on the approach and the quality of the proposals of activist shareholders, it is expected that the boards of listed companies would be interested in a dialogue with activist shareholders who have made constructive proposals or who could be expected to gain substan- tial support from other shareholders.
Activist shareholders can also benefit from several legal measures that force companies to engage constructively with them, such as the right to request a shareholders’ meeting or the right to include items on the agenda of the shareholders’ meeting.
Shareholder minority rights, regardless of the number of shares held, include:
- attending and speaking at shareholders’ meetings (sections 111 and 112, AktG);
- exercising voting rights; and
- asking questions and receiving answers at the shareholders’ meet- ings in connection with items on the agenda (section 118, AktG); and the right to challenge a shareholder’s resolution in court (sections 196 and 201, AktG).
Shareholders individually or collectively representing 1 per cent of the share capital may:
- submit motions (counter proposals) to agenda items; and
- request the review of the amount of consideration for a mandatory offer as well as for a voluntary offer aimed at gaining control with the Austrian Takeover Commission (section 26, paragraph 5 and section 33, paragraph 2, No. 4, Austrian Takeover Act).
Shareholders representing 5 per cent of the share capital may:
- call for a shareholder meeting (section 105, AktG), which can be enforced in court in case of non-compliance;
- request to amend items to the agenda (section 109, AktG);
- request an audit of the annual accounts by a different auditor for good cause (section 270, paragraph 3, Austrian Commercial Code);
- request that certain claims are levied by the company against certain persons or deny a waiver or settlement regarding such claims, in connection with the establishment, post-formation acqui- sition and management of the company, if the claims are based on certain reports; and
- call as shareholders of an acquiring company for a shareholder meeting during the course of a simplified merger, up to a month after the transferring company resolved upon the merger, where it is resolved upon if the merger shall be approved (section 231, paragraph 3, AktG).
Shareholders representing 10 per cent of the share capital may:
- file for removal of a supervisory board member for good cause by the court (section 87, paragraph 10 and section 88, paragraph 4, AktG); and
- request that certain claims are levied by the company against certain persons or deny a waiver or settlement regarding such claims, in connection with the establishment, post-formation acqui- sitions and management of the company.
Shareholders representing 20 per cent of the share capital may:
- deny a waiver or settlement regarding certain claims against members of the management or supervisory board or founding shareholders (section 43, section 84 para 4 and section 99 AktG).
Shareholders representing more than 25 per cent of the share capital present at the shareholders’ meeting may, unless the majority require- ment is reduced in the articles of association:
- veto changes of the company’s articles of association, including capital measures, selective share-buy backs; and
- veto measures carrying exclusion of subscription rights of the shareholders.
Shareholders representing one-third of the share capital may:
- elect an additional member to the supervisory board if three or more members of the supervisory board are elected in one share- holders’ meeting and one candidate got at least one-third of the votes in all prior elections. In this case, that candidate gets the last mandate without a further election.
Processes and guidelines
7| What are the general processes and guidelines for shareholders’ proposals?
At shareholders’ meetings, every shareholder is entitled to speak, to ask questions and to propose motions directed against proposals of the management or the supervisory board regarding the items of the agenda. Shareholders are not required to notify the company in advance of such proposals. However, shareholders may use the company website to solicit support for their counter proposal. For that purpose, shareholders representing 1 per cent of the company’s share capital may:
- submit motions to agenda items, together with reasoning, up to a week prior to the meeting; and
- request that the proposals (including reasons) and the names of the proposing shareholders shall be uploaded to the company’s website. The proposal must be received by the company at least seven business days prior to date of the shareholders’ meeting.
The management board of the company (or the supervisory board in the case of board or auditor elections) may render a statement to the proposal to be published on the website accompanying the shareholder motion. The company’s managing directors are liable for damages occur- ring to the shareholders if the motion is not uploaded on the website. A resolution passed may also be contested by the minority shareholders on that basis. Motions will not be considered by the company for publi- cation only in exceptional circumstances, in particular, if they lack a written reason, would be unlawful or if the proposal would be defama- tory or offensive under criminal law.
Amendment of the agenda of a shareholder meeting
Shareholder proposals concerning subjects other than items on the agenda are only admissible if the agenda is amended accordingly. Only shareholders individually or collectively that have been shareholders for at least three months and represent in total 5 per cent of the compa- ny’s share capital may, in written form, request that additional proposals are included on the agenda of a shareholders’ meeting (section 109, paragraph 1, AktG). This request must be received by the company 21 days prior to an ordinary, or 19 days prior to the date of an extraordi- nary, shareholders’ meeting. An amended agenda has to be published in the same manner and form as the original agenda (for listed companies publication in the Federal Gazette, push forward media (eg, Bloomberg, Reuters or Newswire) as well as on the company’s website). To pursue their rights, shareholders may request the convening of an additional shareholders’ meeting, which can then be enforced in court.
Ordinary subjects of shareholder resolution proposals are:
- counterproposals on profit distributions;
- alternative or additional supervisory board candidates;
- special audit by appointing a special auditor;
- the enforcement of certain compensation claims against board members or other persons; and
- the appointment of special representatives to enforce these claims.
The shareholders’ meeting is competent only as far as expressly provided for by corporate law or by the articles of association. The AktG provides mandatory competence of the shareholders’ meeting on the following items:
- approval of the annual accounts if the supervisory board did not approve or if the management board as well as the supervisory board decided to entrust the shareholders’ meeting to resolve upon the issue (section 104, paragraph 2, lit 1, AktG);
- appropriation of distributable profits (section 104, paragraph 2, lit 2, AktG –the profits shown on the balance sheet have to be fully distributed unless the articles of association allows a full or partial retention by shareholder resolution);
- adjournment of the shareholders’ meeting (section 104, paragraph 2, lit 3, AktG);
- discharge of the members of the management board and super- visory board;
- appointment and removal of supervisory board members (section 87, AktG);
- compensation of the supervisory board members (section 98, AktG);
- appointment of the company auditor (section 270, paragraph 1, Austrian Commercial Code);
- issuance and authorities for issuance of convertible or profit participating bonds (section 174, paragraph 1, AktG) or participa- tion rights (section 174 paragraph 3 AktG);
- amendment of the articles of association (section 145, para- graph 1, AktG);
- capital measures, including authorisations to the management to increase the share capital;
- management matters brought to the shareholders’ meeting by the management board or supervisory board (the latter as far as subject to supervisory board approval) (section 103, para- graph 2, AktG);
- decisions of major importance for the company such as major divestments, drop-down acquisitions (based on adopted German case law known as the Holzmüller/Gelatine-doctrine);
- mergers, demergers and certain other corporate restruc- turing measures;
- vote of no-confidence in respect of members of the management board (section 75, paragraph 4, AktG);
- special audit and appointment of a special auditor (section 130 paragraph 1, AktG);
- profit-pooling agreements (section 238 paragraph 1, AktG);
- delegation or lease of the operation of the company’s commercial activities or the acceptance of such delegation or lease in respect of another company (section 238, paragraph 2, AktG);
- transfer of the entire assets of the company (section 237, para- graph 1, AktG);
- dissolution of the company (section 203, paragraph 1, lit 2, AktG) and continuation of a dissolved company (section 215, AktG);
- appointment and removal of liquidators (section 206, AktG);
- discharge of the liquidators (section 211, paragraph 2, AktG); and
- remuneration policy (at least every four years and in the case of a material change) for the members of the executive board as well as the supervisory board and compensation report (section 78b and section 78d, AktG).
8 | May shareholders nominate directors for election to the board and use the company’s proxy or shareholder circular infrastructure, at the company’s expense, to do so?
If an item of the agenda in a shareholders’ meeting, any shareholder (group of shareholders) representing 1 per cent of the share capital of a listed company, can propose candidates for election to the super- visory board. For that purpose, the details of proposed candidates for the supervisory board have to be submitted (including a declaration of the candidate according to section 87, paragraph 4, AktG) requesting an upload to the company’s website together with the names of the proposing shareholders (section 110, paragraphs 1 and 2, AktG). Such a proposal must be received by the company at least seven business days prior to date of the shareholders’ meeting. The supervisory board may render a statement with respect to the proposal to be published on the website accompanying the shareholder proposal.
In the case of listed companies, only candidates presented on the company’s website on the fifth business day prior to the shareholders’ meeting at the latest qualify for an election to the supervisory board. No candidates can be proposed ad hoc in the shareholders’ meeting of a listed company (section 87, paragraph 8, AktG).
9 | May shareholders call a special shareholders’ meeting? What are the requirements? May shareholders act by written consent in lieu of a meeting?
Request to call a shareholders’ meeting
Shareholders who together hold at least 5 per cent of the share capital (or less if stated in the articles of association) may require the company to call a shareholders’ meeting (section 105, paragraph 3, AktG). The request has to be addressed to the management board in writing and should state the objective and reasons together with an agenda and motions for each agenda item. Requesting shareholders must prove that they hold a sufficient number of shares (quorum) for the legally required minimum period of ownership of three months. The share- holding, including the holding period of three months, may be evidenced by a deposit confirmation (or in the case of registered shares by an entry in the share register).
Permission to call a shareholders’ meeting at the company’s expense
If the company fails to comply with a proper request to call a share- holders’ meeting, requesting shareholders may apply to the court for an authorisation to call a shareholders’ meeting at the company’s expense (section 105, paragraph 4, AktG).
Shareholders’ meeting required
Shareholders may not act by written consent in lieu of a share- holders’ meeting.
10 | What are the main types of litigation shareholders in your jurisdiction may initiate against corporations and directors? May shareholders bring derivative actions on behalf of the corporation or class actions on behalf of all shareholders? Are there methods of obtaining access to company information?
Each shareholder may request at a shareholders’ meeting to resolve upon an appointment of a special auditor investigating actions of the management. The purpose of the special audit is to obtain informa- tion on any breaches of duty. This information might be necessary to bring an action, especially as the plaintiff bears the burden of proof. If that resolution is not passed a shareholder (or group of shareholders) holding 10 per cent of the share capital (over the last three months) may request a special audit and appointment of a special auditor at court, provided that the shareholders are able to demonstrate evidence that the company has been harmed.
The assertion of damage claims by the company against share- holders, members of the management board or the supervisory board, can be requested by a shareholder (or a group of shareholders) holding 10 per cent of the share capital (over the last three months until the legal proceedings have been completed), if such claims are not mani- festly unfounded. The threshold to request the assertion of damage claims by the company is reduced to 5 per cent of the share capital, if a report by special auditors reveals a potential basis of liability.
In Austria, strike suits by professional plaintiffs seeking profits through litigation are not very common. The general idea is to block (delay) the registration of a shareholder resolution with the commercial register (eg, capital increases, merger, spin-off) as they become effective only upon registration with the commercial register. The commercial register court may decide to suspend the proceedings to register a shareholder resolution in the case of a pending challenge. However, the court would also have the discretion to register the shareholder resolu- tion irrespective of the pending suit, if the interest of the company in the transaction outweighs the interest pursued by the claiming share- holder. The cost risk of litigation, however, often deters shareholders from raising such claims.
Further, the challenge of a shareholder resolution on restructur- ings (such as mergers) or a squeeze-out shall not be based on an alleged inadequate share exchange ratio of merger or squeeze-out compensa- tion. Those may be examined in a special court procedure, which may lead to additional compensation payments (or the granting of additional shares in the case of a merger) without, however, blocking the registra- tion with the commercial register and delaying the transaction.
Austrian law does not provide for class actions. However, depending on the subject matter, models based on private law agree- ments have been developed, involving assignment of claims to claimant vehicles including financing by litigation finance providers.
There is no comprehensive right to obtain information or the right to inspect the company’s books; rather, the right to obtain information and raise questions is exclusively concentrated on the shareholders’ meeting.
11 | Do shareholder activists owe fiduciary duties to the company?
Each shareholder owes a general fiduciary duty to the company as well as towards other shareholders, which is based on case law and imposes certain limits on the power of the majority as well as on minority rights. Shareholders that influence members of the management or super- visory board to act against the interests of the company may be held liable for damages.
12 | May directors accept compensation from shareholders who appoint them?
Members of the supervisory board are elected by the shareholders in the shareholders’ meeting or by delegation of shareholders if regis- tered shares (golden shares) of a company carry such delegation rights. Members of the supervisory board are usually compensated by the company. However, they may accept direct compensation from share- holders under certain circumstances.
Whatever the case all duties of the supervisory board are primarily owed to the company (and not to the shareholders), regardless of whether a member receives direct compensation from shareholders or not. Members of the supervisory board that are in breach of their duties may be held liable under civil and criminal law.
Members of the management board are appointed by the supervi- sory board, which includes the determination of the remuneration of the board member (also payments from shareholders, as the case may be, are subject to the approval of the supervisory board).
13 | Are shareholders acting in concert subject to any mandatory bid requirements in your jurisdiction? When are shareholders deemed to be acting in concert?
Under the Austrian Takeover Act, a group of shareholders acting in concert must launch a mandatory offer to acquire the remaining shares in a listed company upon obtaining control (ie, a shareholding repre- senting, directly or indirectly, at least 30 per cent of the voting rights (or a lower threshold provided by the articles of association)). Certain exemptions are applicable: for example, if another shareholder (group of shareholders acting in concert) holds the same or a higher percentage of voting rights. Shareholdings and voting rights of shareholders acting in concert are aggregated.
‘Acting in concert’ is defined as jointly seeking control of or exer- cising control over the company on the basis of an arrangement, not necessarily to be qualified as an enforceable agreement. A (rebuttable) presumption of acting in concert applies where the parties in question belong to the same group of companies or participate in arrangements regarding the election of supervisory board members.
Generally, the Austrian Takeover Commission closely scrutinises any contact between major shareholders on the appointment and removal of supervisory board members and other sensitive measures that are considered as ‘control seeking’, if the aggregated shareholding of the shareholders exceeds 30 per cent. To determine whether a group of shareholders are acting in concert, a broad range of indica- tive behaviour is considered by the Austrian Takeover Commission. In particular, this concerns any communication (eg, written, oral, tacit) by a shareholder that can reasonably be expected to cause another share- holder to exercise its voting or other shareholder rights in a particular manner as an arrangement (irrespective of a binding effect). Recently, the Austrian Takeover Commission decided that an activist shareholder acting in concert with another (previously) non-controlling shareholder crossed the threshold of 30 per cent and violated its obligation to launch a mandatory offer.
14 | Must shareholders disclose significant shareholdings? If so, when? Must such disclosure include the shareholder’s intentions?
Under the Austrian Stock Exchange Act, a shareholder must publicly disclose its shareholding to the Austrian Financial Market Authority, the Stock Exchange and the issuer, if it reaches, exceeds or falls below 4, 5, 10, 15, 20, 25, 30, 35, 40, 45, 50, 75 or 90 per cent of the voting rights of the company, either directly or indirectly (eg, via subsidiaries) or through financial instruments or derivatives through which voting shares can be acquired or instruments that have a similar economic effect. For the purpose of determining whether a threshold has been reached, voting rights from shares and instruments are aggregated. The articles of association may include a further disclosure threshold at 3 per cent. A shareholder must make the disclosure immediately and in any event within two trading days, and each time its shareholding meets, exceeds or falls below a relevant threshold.
Shareholders acting in concert are aggregated for the purposes of compliance with disclosure thresholds.
Shareholders are not obliged to reveal their intentions or investment strategy in such disclosure. Nevertheless, a disclosure requirement with respect to investment strategies can arise from other disclosure obligations shareholders may be subject to, for example, if shareholders are to be qualified as investment funds or stock-listed companies themselves.
Non-compliance with disclosure obligations results in an automatic suspension of voting rights attached to the shares not disclosed (the articles of association may generally extend such suspension to all voting rights of the non-compliant shareholder). The voting rights can be exercised again after a period of six months following due disclosure of the shareholding.
A violation of disclosure obligations can result in an administra- tive fine of up to €2 million or twice the amount of the benefit derived from the violation, whichever amount is higher. Administrative fines are published online as part of ‘naming and shaming’.
15 | Do the disclosure requirements apply to derivative instruments, acting in concert or short positions?
The disclosure requirements cover not only the acquisition and sale of shares, but also derivative financial instruments such as call-options, shares in investment funds and similar instruments.
Legislation provides for additional attributions according to which the shareholder must also report voting rights he or she can exercise or influence although they are arising from shares held by third parties. One of these attributions is ‘acting in concert’. ‘Acting in concert’ means that the voting rights of the jointly acting legal entities are attributed to each other and must therefore be disclosed by each participating shareholder.
Short positions are not subject to large shareholder disclosure requirements.
Based on Regulation (EU) No. 236/2012 on short selling and certain aspects of credit default swaps, a two-level transparency system was implemented for net short positions in shares. Net short positions in shares that reach 0.2 per cent of the issued share capital of the company have to be notified with the Austrian Financial Market Authority (FMA). If the net short position in shares reaches 0.5 per cent of the issued share capital, a respective publication on the website of the FMA is required.
16 | Do insider trading rules apply to activist activity?
Shareholder activists are also subject to the provisions on the prohibi- tion of insider trading.
An activist strategy may be qualified as inside information. If this is the case, it has to be noted that in general the shareholder activists are not limited to use their ‘self-created’ inside information themselves. On the other hand, if the management is aware of an activist strategy to be qualified as an inside information, the management has to meet the obligations for the public disclosure of inside information.
COMPANY RESPONSE STRATEGIES
17 | What are the fiduciary duties of directors in the context of an activist proposal? Is there a different standard for considering an activist proposal compared to other board decisions?
Structural strategies preventing or hindering shareholder activism are:
- issuing additional securities to increase the costs of a takeover offer; and
- staggering terms of members of the supervisory board.
The following strategies require a change of the articles of association or shareholder resolution:
- higher voting thresholds or additional voting requirements compared to the statutory voting requirements;
- the right of certain shareholders (holders of registered shares) to nominate supervisory board members;
- the decrease in the threshold for the attainment of a controlling interest leading to a mandatory takeover bid;
- voting caps; and
- the issuing of dual-class stocks whereby a maximum of one-third of shares can be issued without voting rights (preference shares); and
Of course, such defences do not protect the company against the exercise of minority rights with the intent to levy pressure on the management. They, however, make the formation of minority shareholder groups or the accumulation of shares in the hands of activist shareholders less likely.
Structural features making a company more likely to come under the influence or be targeted by activist shareholders are:
- a large number of free-floating shares;
- passive institutional shareholders;
- low attendance at shareholders’ meetings;
- depressed or discounted stock price; and
- takeover or restructuring situations (supporting or rejecting take- over bids or blocking of shareholder resolutions).
In respect of takeover situations, the board neutrality rule has to be observed. Once the target company gains knowledge of a bidder’s intention to launch a bid (‘relevant date’), the company must not take measures that could impair the shareholder’s opportunity to make a free and informed decision on the offer and, further, the target company’s management (as well as the supervisory board) must obtain the consent of the shareholders’ meeting for any measures (other than seeking alternative bids) that could impair the takeover bid, such as issuing of securities that could prevent the bidder from acquiring control of the target company, sale of material assets (‘crown jewels’), purchase of other companies or businesses or material changes to the financing structure. No shareholders’ meeting consent is required for the imple- mentation of board decisions:
- in the ordinary course of business that were taken prior to the relevant date;
- that have been (at least partially) implemented by the rele- vant date; or
- for any measures the board is already obliged to take at that time.
18 | What advice do you give companies to prepare for shareholder activism? Is shareholder activism and engagement a matter of heightened concern in the boardroom?
Although shareholder activism has increased in recent years, it is still a rather new phenomenon in Austria and does not have the same impact as in other jurisdictions. To be prepared for shareholder activism, companies should analyse their business model and their shareholder structure from the perspective of an activist shareholder.
The following measures should be considered:
- engage in an active dialogue with institutional shareholders on the company strategy in particular on potentially contentious measures;
- establish a process to supervise the media, rumours and the share- holder structure to be prepared for quick reactions;
- appoint an ‘action team’;
- prepare investor and public statements (response strategy), in particular on any items likely to be addressed by activist shareholders;
- implementation of a ‘one-voice policy’ of the boards;
- decrease the threshold for disclosures of significant shareholdings to 3 per cent (requiring a change of the articles of association); and
- extend the suspension of voting rights attached to the shares on all voting rights of a shareholder infringing disclosure rules for significant shareholdings (requiring a change of the articles of association).
19 | What defences are available to companies to avoid being the target of shareholder activism or respond to shareholder activism?
The following defence measures should be considered:
- engage in an active dialogue with institutional shareholders on the company strategy in particular on potentially contentious measures;
- establish a process to supervise the media, rumours and the shareholder structure to be prepared for quick reactions;
- appoint an ‘action team’;
- prepare investor and public statements (response strategy) in particular on any items likely to be addressed by activist share- holders; and
- implementation of a ‘one-voice policy’ of the boards.
If the company has become the target of the activist shareholder, the following procedure is recommended:
- elaborate a coordinated communication or reaction of the company;
- carefully prepare a rapid response to avoid uncertainty among market participants;
- avoid the impression that the activist shareholder is pursuing a new strategy in the interests of shareholders and society as a whole;
- countering with facts and reasonable, economically and legally sound answers; and
- execute a strong and positive business development as the best defence reaction.
20 | Do companies receive daily or periodic reports of proxy votes during the voting period?
There is no statutory proxy voting outside the shareholders’ meeting. Shareholders may participate in shareholders’ meetings by way of elec- tronic communication if the company’s articles of association provide for such participation. If a proxy voter is nominated, voting instructions given to the proxy voter are often kept confidential and, in general, there is no exchange between management and shareholders on such instructions submitted prior to the shareholders’ meeting.
21 | Is it common for companies in your jurisdiction to enter into a private settlement with activists? If so, what types of arrangements are typically agreed?
In general, it is not common to enter into a private settlement. If a settle- ment is considered, the management is obliged to examine and assess the activist shareholder’s requests in detail. An unconditional advance commitment is inadmissible in any case.
In particular, the management has to examine whether the activist shareholder’s proposal is in the interests of the company, the other shareholders and the enterprise. A settlement with respect to individual proposals of the activist shareholder (eg, disinvestment of participa- tions, change of dividend policy, proposals for appointments to the supervisory board, etc) is permissible if the proposals are in the best interests of the company and the agreement is made subject to change of circumstances.
SHAREHOLDER COMMUNICATION AND ENGAGEMENT
22 | Is it common to have organised shareholder engagement efforts as a matter of course? What do outreach efforts typically entail?
In the recent past, the engagement of Austrian listed companies regarding shareholder communication increased significantly. Besides investor relations activities, roadshows, investor conference calls and press conferences, the management also liaises individual institu- tional investors or groups. In any case, the management has to comply with the principle of equal treatment of all shareholders (section 47a, AktG) as well as the obligation to keep the company’s affairs confiden- tial. Nevertheless, the communication with activist shareholders is legally permitted if it is in the interests of the company and its (other) shareholders.
23 | Are directors commonly involved in shareholder engagement efforts?
In most Austrian companies, the members of the management board will primarily handle contact with significant shareholders or activists. Also, the management might be involved in shareholder engagement efforts and the further approach. Depending on the composition of the boards and the acting individuals, the chairman of the supervisory board may also be involved in a direct dialogue with significant share- holders or activists.
24 | Must companies disclose shareholder engagement efforts or how shareholders may communicate directly with the board? Must companies avoid selective or unequal disclosure? When companies disclose shareholder engagement efforts, what form does the disclosure take?
Selective disclosure to particular shareholders by the company outside of a shareholders’ meeting has to comply with the principle of equal treatment of all shareholders (section 47a, AktG). The Austrian Corporate Governance Code (CGK) also emphasises that institu- tional and individual investors have to be treated equally. Information disclosed outside of a shareholders’ meeting is only admissible if it is in the interest of the company and if there is no unjustifiable preferential treatment.
Any such disclosed information must not qualify as inside informa- tion or be of disadvantage to other shareholders.
Communication with shareholders
25 | What are the primary rules relating to communications to obtain support from other shareholders? How do companies solicit votes from shareholders? Are there systems enabling the company to identify or facilitating direct communication with its shareholders?
Communication can be conducted by companies as well as activists via:
- open letters and campaigns;
- press conferences;
- social media; and
- proxy fights via proxy advisers on motions for shareholder resolu- tions and contested director elections.
The amendment of the EU Shareholders’ Rights Directive (2017/828) that has recently been incorporated into national law provides for the right of companies to have their shareholders identified, to register respective data and to address and communicate with shareholders.
There are no special legal provisions in connection with the use of social media; however, the general rules against market abuse have to be observed.
Access to the share register
26 | Must companies, generally or at a shareholder’s request, provide a list of registered shareholders or a list of beneficial ownership, or submit to their shareholders information prepared by a requesting shareholder? How may this request be resisted?
In principle, non-listed stock corporations may only issue registered shares and must maintain a share register. The share register shall not be made available to the public or to other shareholders due to privacy requirements (data protection legislation). Listed stock corporations generally issue bearer shares and cannot maintain a shareholder register.
However, access to the list of participants of a shareholders’ meeting (including the number of shares present at the meeting) can be derived publicly from the commercial register. The participant list has to be attached to the minutes of a shareholders’ meeting filed with the commercial register (sections 117 and 120, paragraph 3, AktG).
The Beneficial Owners Register Act has been enacted concerning the transparency of beneficial ownership of companies, other legal enti- ties and trusts that have to be reported to the register. However, only shareholders holding more than 25 per cent of the shares or voting rights or indirectly exercising control are to be reported to the register as beneficial owners. The amendment, which recently entered into force, has made the register accessible to the public. Everyone is able to access extracts via the homepage of the Federal Ministry of Finance, even without a legitimate interest. These public extracts contain the first and last name, month and year of birth, nationality and country of resi- dence of the direct or indirect beneficial owner of the legal entity as well as the nature of the economic interest.
The EU Shareholders’ Rights Directive (2017/828) has been amended providing the right of companies to have their shareholders identified, to register respective data and to address and communicate with shareholders. According to the implementing Austrian law, only shareholders with a minimum of 0.5 per cent are to be disclosed to the company by the intermediaries (deposit banks). However, any such company data will not be accessible to (activist) shareholders.
According to the CGK, the company is obliged to hold regular conference calls or events for analysts and investors. The CGK ensures that the same information is made public following a communication to financial analysts or investors. The rule addresses new facts and thus covers all new information, irrespective of its price relevance and importance. The provision thus goes well beyond the mandatory duty programme of the Market Abuse Regulation.
UPDATE AND TRENDS
Recent activist campaigns
27 | Discuss any noteworthy recent, high-profile shareholder activist campaigns in your jurisdiction. What are the current hot topics in shareholder activism and engagement?
In 2020, for the first time shareholders will have the right to vote on the remuneration policy of executive board members, which is to be consid- ered the current hot topic for shareholder engagement.
Reproduced with permission from Law Business Research Ltd. This article was first published in May 2020.
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