Climate-Related Shareholder Activism as Corporate Democracy: A Call to Reform “Acting in Concert” Rules

Abstract

Climate change is an issue of global importance, which may turn out to be the issue of this century. Companies are at the core of both the problems and solutions for climate change. Given this reality, it is astounding that in virtually all jurisdictions in the world “acting in concert rules”, which were designed decades ago to facilitate an efficient market for corporate control, effectively prevent shareholders who hold a majority of shares from democratically replacing boards of brown companies. Our article exposes this overlooked reality by undertaking the first in-depth comparative analysis of acting in concert rules with a focus on their impact on climate-related shareholder activism. It reveals how acting in concert rules, in virtually all jurisdictions around the world, perversely prevent institutional investors from replacing boards that resist (or even deny) climate change solutions – even if (or, ironically, precisely because) they collectively have enough shareholder voting rights to democratically replace the boards of recalcitrant companies. This heretofore hidden problem in corporate and securities law effectively prevents trillions of dollars of shareholder voting rights that institutional investors legally control from being democratically exercised to change companies who refuse to properly acknowledge the threat of climate change. We explain how this perverse result has arisen because the legal rules concerning acting in concert were designed in a different age when contests of control – not shareholder activism targeting the existential threat of climate change – formed the foundational rationale undergirding such rules. This has created a panoply of rules which disincentivize – and, in cases of mandatory bids and poison pills, may functionally disenfranchise – institutional investors from using aggressive tactics to drive climate change prevention initiatives supported by a majority of shareholders. As such, we argue that the acting in concert rules must be reformed around the world to promote shareholder-backed climate initiatives – while still maintaining the fair and effective markets for corporate control, which was the original impetus for creating them. By designing a workable model for reforming acting in concert laws, we provide a global solution to the problem of brown boards being undemocratically shielded by acting in concert rules – an overlooked reality that may be a key to saving our planet.

Keywords: Climate change, acting in concert, shareholder activism, stewardship, sustainable corporate governance