Can Singapore-listed companies legally block shareholder proposals?

IN A landmark lawsuit that could potentially silence minority shareholders of big companies, oil and gas giant ExxonMobil has sued activist investors in a bid to block their climate change proposal from being voted on at its upcoming annual meeting in May. 

Exxon in January sued two sustainability investors – Arjuna Capital and Follow This – in a federal court in Texas for filing a shareholder proposal to reduce greenhouse gas emissions.

The company claimed that the investors had “(hijacked) the shareholder proposal process” by constantly filing similar proposals year after year to advance their social causes rather than grow shareholder value.

Although the investors eventually dropped their proposal, Exxon is going ahead with the lawsuit so that investors will not be allowed to put forth similar proposals in future.

Exxon’s move to block a shareholder proposal through legal action, rather than appeal to the US Securities and Exchange Commission, is tantamount to “intimidation and bullying” to silence climate change activists, said Follow This founder Mark van Ball.

Legal experts in Singapore said that listed companies here can also take legal action to block shareholders.

However, they added that it would be difficult to block on sustainability-related issues relevant to a general meeting, unless it is proven that the proposal is not in the interest of the company.

Why it matters

Similar cases could sprout in Singapore as environmental, social and governance (ESG) issues become more important to investors, experts said.

They noted that shareholder activism is on the rise in Singapore in tandem with the global trend towards sustainable investing.

Shaun Leong, a dispute resolution lawyer with Withers KhattarWong, said that regulatory bodies in Singapore as well as institutional investors and organisations are advocating for good governance practices and investor rights.

“The evolution towards ESG-centred shareholder activism indicates a maturing corporate landscape in Singapore, suggesting we may see continued growth in active investor groups pushing for sustainability and other ESG causes,” said Leong, a partner at the firm.

Ong Pei Ching, a partner at TSMP Law, said that it is mostly institutional investors who are active on ESG issues.

As the investment matrix now tends to include ESG performance, institutional investors may no longer be able to invest in non-ESG compliant companies.

“So there are good business reasons for both listed companies to have better ESG practices, and for their investors to take active positions in the companies’ ESG policies and practices,” said Ong.

Can Singapore-listed companies take investors to court? 

A listed company can turn to the courts to determine if it is obliged to table a shareholder’s proposals under certain circumstances, said Ong.

The company can do so if there are any procedural irregularities, or if the proposed resolution is not in line with what the general meeting was called for, she said.

As a company’s ESG track record is increasingly part of companies’ annual reports, shareholders’ proposals relating to sustainability issues may be relevant to the general meeting and may not be blocked, she added.

Leong said that the courts will likely consider whether the proposal by shareholders is abusive for a collateral purpose.

A proposal can be seen to be abusive for a collateral purpose if it was submitted by shareholders to further a different agenda that is not aligned with the interest of the company or interest of the business owners, said Leong. For example, a shareholder who has shares in different companies could propose an agenda to further the interest of other organisations.

He added that whether a proposal is perceived as abusive would be based on the circumstances of each case.

If a company continues to take legal action even after shareholders withdraw their proposal, the courts here would likely question the objective of the lawsuit as they typically do not entertain hypothetical scenarios, said Leong.

Besides legal action, companies can consider other ways to stop shareholders from pursuing their proposals, said experts. These include arbitration and engaging shareholders directly.

Said Leong: “Such approaches can be very helpful to preserve relationships which in the longer term can reinforce investor confidence.”