Shareholder activism or activism through capital market is a new trend in social policy advocacy, which is usually done by minority investor in General Meeting of Shareholder of a Public Company to influence the corporate’s policy. All this time, the shareholder activism has not been exercised by civil society organization in Indonesia, but there are a lot of practices in several countries. This was part of the capacity building for PWYP coalition members and networks entitled “Understanding the Capital Market to Support the Civil Society Advocacy Work”, last (20/3).
Rizky Ananda, researcher at PWYP Indonesia said that the number of civil society organization who works on the taxation issue, from the administrative aspect to identifying the potential of tax evasion and tax avoidance has been growing. However, the civil society’s work on capital market still a few, even though the capital market contributes 12% of national economic growth in 2016.
Bhima Yudhistira, the researcher of Institute for Development of Economics and Finance (INDEF) which also the resource person in the capacity building explained that one of benefit of being an investor though with minority shareholder is that the investor could access the corporate’s data. “Although the issuer/corporate is mandatory to deliver its financial report to public, as regulated in Financial Service Authority Regulation (POJK) no 29/POJK 04/2016, but some information only can be accessed by the investor,” said Bhima.
By analysing the corporate’s financial report, civil society could identify the potential of tax evasion which allegedly done by some public corporates. During 2003-2012, among developed countries, Asia is the biggest contributor for illicit financial flows, and more than 80% from illicit financial flows in Asia is induced by miss-invoicing trade. Bhima added, the indication of transfer pricing can be identified by analysing the cost of revenue and the paid tax, then assess corporate tax fairness through comparing with other corporates within the same sector, and pay attention with other aspects in corporate’s financial report.
Further, Bima explained some examples of shareholder activism cases. One of them is the lawsuit for the ex CEO and CFO of Rio Tinto which allegedly inflated the potential value of coal mining in Mozambique. At that time Rio Tinto acquired the coal mining asset USD 3.7billion. However, in the next several years Rio Tinto sold that asset worth with USD 50million. In 2011, the investor felt something clumsy in the valuation of mining asset and finally reported to the Securities Exchange Commission. After 6 years of investigation, CEO and CFO of Rio Tinto was replaced. There is another case in USA, where the International Brotherhood of Electrical Worker which establish the pension fund succeeds to sue several electronic companies due to low labour wages.
“Although the investor activist’s stock proportion is a few, compared to other big investors, it can be an effective way to grab corporate attention in social policy. Investor activist can conduct campaign in media to influence other investors. This can be an alternative for civil society in advocating the social policy and urge corporate to be more compliant,” said Bhima.