What has led to the emancipation of shareholders? Which factors have contributed to the increased self-confidence of investors and mutated them from nodding yes-machines to activists? Is there a connection between shareholder activism and the increased pressure on corporate management teams? Is activism of individual shareholders going to increase in the future?

These were some of the fascinating themes of the 10th Financial Community Update which took place on August 29 in Hotel Widder. In the discussion moderated by Michael Düringer, Partner at IR Firm, two experts of the financial community shared their views and personal experiences of shareholder activism with the audience.

Dr Ulrich Grete, President of the AHV fund (Swiss national pension scheme), which was called “critical investor” by the Tages-Anzeiger in June 2007, represented in the discussion the side of investors. Right at the beginning he highlighted the importance of institutional investors making autonomic decisions as they also have to be able to defend them autonomously. For the AHV fund, which also has to take the political environment into account in its decision making, there is no room for alliances.

The views of corporate boards were represented in the debate by Dave Schnell, a senior Board member with personal experience from several situations where corporate management was criticised and attacked by activist shareholders. As an answer to the question about key learnings during his time at SIG, he emphasised the importance of good preparations. The company’s strategy and direction have to be carefully defined already before a critical situation has occurred in order to be able to present clear statements when needed.

In his answer to the question about the main reasons leading to shareholder activism, Dave Schnell put the activism debate into a wider perspective: According to him organisations with an own agenda like the AHV fund are still rare exceptions. The most investors are more interested in business models and future perspectives than in corporate governance matters. One factor leading to activist behaviour of shareholders is the fact that especially the institutional investors have slowly realized that they are paying for the voting rights and therefore also should be using them.

In reaction to the discussion about excessive management compensation, Ulrich Grete warned against populism: 99 per cent of management compensation is in line with good corporate governance, even if the current emotional discussion has given a totally different picture. Only the board of a company can truly asses the quality of management’s work. Therefore, the AGM cannot be the right arena to discuss management compensation issues.

As a summary can be said that a continuous dialogue between a company and its shareholders helps to prevent escalations. An open dialogue fosters understanding between differing interests and encourages to overcome differences.