Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

U.S. hedge fund Elliott Advisors is going to court to secure a no-confidence vote in AkzoNobel NV's chairman.

It looks like classic activist aggression. But the move isn't extreme. Under Dutch governance rules, the paint maker's shareholders have few conventional means of getting heard.

Middling Returns
In the five years prior to the bid, Akzo's performance was only in-line with the AEX
Source: Bloomberg

Elliott has the backing of other shareholders in seeking to oust Antony Burgmans. On the surface, they want to force Akzo to reverse its opposition to takeover talks with predator PPG Industries Inc. But there's more to it than that. 

The company has a supervisory board led by Burgmans and a separate management board led by CEO Ton Buechner. As is the norm in the Netherlands, they only come up for re-election at the annual meeting every four years. In 2014, Burgmans won the backing of 97 percent of votes cast.

That is not the mandate it seems.

For a start, the vote loses its force by not being renewed annually. What's more, some Akzo shareholders say their main acquaintance with the company's leadership is, unsurprisingly, via the management board. Without a close knowledge of supervisory board members, investors can't vote with conviction and so defer to the recommendations of shareholder advisory services.

Investors otherwise get only an indirect say each year on how the board is doing. The annual meeting includes resolutions to discharge directors of liability in doing their job, to empower them to issue new stock and to restrict shareholder rights. These attracted support votes of roughly 70 percent of holders at April's annual meeting, down from 82 to 99 percent last year.

Dissent Stirring
The proportion of shareholders backing Akzo's managers is falling
Source: Bloomberg

About three-quarters of the 30 percent protest vote can be accounted for by shareholders who have voiced their unhappiness with Akzo's management. But it can't be assumed that there's a silent majority supporting the company: the poll was taken before Akzo had rejected PPG's third offer. Some of the votes may have been cast by proxy before the battle intensified. As Tweedy, Browne Co. LLC says, there is a crisis of confidence at the shareholder level.

Contrast this with Unilever. Being half-British, half-Dutch, the consumer group has to comply with the U.K.'s tougher corporate governance rules. Directors stand for re-election every year. That means they always have a fresh mandate to take big decisions on shareholders' behalf, including on the acceptability of any takeover bid. Unilever has a unitary board, so non-execs aren't one step removed from the executives. Nor does Unilever have specific anti-takeover defenses like Akzo's.

Akzo is resisting a shareholder vote on Burgmans. Sure, it doesn't want to the company to be run by serial referendum. But that's not a forceful argument when directors get a mandate from shareholders only every four years.

If PPG walks away, Akzo will get to pursue its strategy of splitting in two. It's likely that, before long, bidders will emerge for both companies. Akzo will need the trust of its shareholders to see off the next wave of raiders. That will need a governance overhaul.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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