SEC Updates Guidance on Beneficial Ownership Filings

On February 11, the staff of the SEC’s Division of Corporation Finance issued a new Compliance and Disclosure Interpretation (“C&DI”) related to shareholder eligibility to file Schedule 13G and 13D beneficial ownership reports. In the past, passive institutional investors that held a stake in an operating company filed a shorter Schedule 13G when reporting engagement with a company. The new guidance broadens what is considered “influencing control of the issuer” and would require passive institutional investors to file a Schedule 13D if their engagement rises to the new, higher threshold. The guidance notes examples such as, if a shareholder’s engagement involves discussions relating to the issuer removing its staggered board, a switch to a majority voting standard in uncontested director elections, eliminating a poison pill plan, a change to its executive compensation practices, or plans to undertake specific actions on a social, environmental, or political policy and, and uses a future director election as a means of pressure, then filing a Schedule 13G may be unavailable. Additionally, if the shareholder discusses with management the issuer’s voting policy and the failure to meet the shareholder’s expectations and the shareholder ties that to their vote in an upcoming director election, they may not be eligible to file Schedule 13G.

These changes will impact the upcoming proxy season for passive institutional investors and require some of the larger asset managers to examine their meetings and discussions with operating companies.

Click here to read the new guidance from the Division of Corporate Finance.
Click here to read a client alert from Ropes & Gray covering the changes.