With the slow demise of newsrooms, activist shareholders have soaked up some of the limelight once held by the media in causing mischief in boardrooms.
Whether it be the short positions taken ahead of a Muddy Waters report highlighting the alleged wrongdoing of multinationals, or Elliott Investment Management snapping up stakes in some of the UK’s biggest firms to shake up the C-suites – it is clear activists want a piece of the action, and they’re more than willing to take it by marching through the front door.
But a recent court decision could put an end to some of their more cavalier attempts to whip up tensions. The Privy Council – the highest court in the Commonwealth, whose decisions carry the same weight as those of the UK Supreme Court – has ruled that the so-called “Shareholder Rule” is no more.
The rule, with its roots in Victorian England, stated that legal advice sought by companies could not be deemed privileged from shareholders bringing legal proceedings because the advice was, in essence, funded by the shareholders, by virtue of them owning part of the company.
However, judges have now ruled this to be unrealistic – or akin to the Emperor’s New Clothes, according to the Judgement in a case about share valuations between Jardine Strategic Holdings and Oasis Investments.
It means that, in future, any legal advice given to companies will no longer be easily disclosed in proceedings, thus protecting boardrooms from being forced to hand over transparent assessments ahead of any big decisions on M&A, buybacks or deals.
For reputation and risk management professionals, this sounds like good news. Controlling the narrative is always key to any successful strategy, and when activists sink their claws in, the momentum can be ruthless.
Companies will now be able to seek advice without the risks of the past, and the stewards of those firms may find themselves better equipped to fend off hedge funds looking for a quick buck instead of a long-term, secure future for the businesses they are circling.
But boardrooms should be wary: this is not a silver bullet, and no major organisation should think that corporate governance has somehow been given a breather.
A quick look at the Post Office Horizon scandal shows that one of the biggest issues was the lack of transparency between the lawyers and the company. The legal advice over the prosecutions of sub-postmasters has faced intense scrutiny, along with questions over whether that advice should have remained privileged.
When legal secrecy collides with public accountability, the fallout can be catastrophic.
For us as communications advisors, this new ruling is not just about what can be kept private – it’s about knowing when to advise clients that transparency may still be the wiser choice.