The author of a major M&A report has told Lawyers Weekly that companies need to back-up words with actions before bleating that shareholder activism is stifling business.
Graeme Browning (pictured), the managing partner of transaction advisory services, Oceania, with Ernst & Young, was speaking to Lawyers Weekly about the results of EY’s Capital Confidence Barometer report which was released yesterday (28 April).
Cost reduction was overwhelmingly the strongest response (42%) when 136 senior executives in Australia and New Zealand were asked what topics had been elevated on boardroom agendas as a result of shareholder activism.
Browning said that rather than showing that the threat of class actions is stifling innovation in Australian boardrooms, shareholders are appropriately running a critical eye over company strategy.
“Shareholder groups need to understand the growth story for companies, and companies need to do a better job of explaining and them and executing those growth plans in accordance with what they have promised to shareholders,” he said, adding that he was not surprised by the survey result.
Browning said companies should expect a critical eye to be run over board decisions in the present climate.
“When you are in a lower growth environment, and we are going to be in that for some time, companies should have a fairly healthy focus on cost reduction,” he said.
A report by Herbert Smith Freehills in late February made the claim that Australia would see an “unprecedented” level of class action activity in 2014.
At a class action roundtable in March, Jones Day partner John Emmerig, one of Australia’s leading class action lawyers, said that the increasing number of securities class actions was curbing the entrepreneurial spirit in boardrooms.
“Yes, class actions do act as a deterrent [to corporate malfeasance], but the real question is do they act as an over deterrence?
“Too much deterrence means we remove the entrepreneurial spirit and this is a problem.”
The survey also found that 20 per cent of companies indicated they were looking to cut staff in the next 12 months, which was significantly up from the previous report in October 2013 (12%).
Browning looked at this result as the glass being half-full, stating that it showed the vast majority of survey respondents (80%) were looking to increase (32%) or maintain (48%) current workforce numbers.
“Australia’s current unemployment rate is still at quite low levels,” said Browning. “If you have a majority of respondents saying that given those levels, we are going to hold or slightly grow our employment numbers, that is another indicator of confidence in the broader outlook.”
In February Australia’s unemployment rate rose to a decade-high level of just under six percent.
Australia less desirable
EY carried out concurrent surveys of over 1600 executives in 54 countries globally in March. The international results show that Australia has fallen from 19th to 22nd in the last six months as an investment destination for global companies.
Browning downplayed such a slip, but said Australia should be much higher up the list.
“What has happened over the last few years as the mining cycle has peaked, which is a feature of less investment coming into Australia, what we are seeing with our clients is there is less investment coming into mining and mining-related industries, with progressively more investment coming into other parts of the economy.”
The survey also found that 52 per cent of executives believe that deal volumes will improve in the next year, with over double the number of respondents (54%) stating that their company is focussed on growth as opposed to cost reduction (26%).