beneficial ownership proposal can aid engagement
apr 19, 2022
hopes measure would avoid chilling communications between investors
and with companies
of Institutional Investors (CII) has welcomed a proposed SEC measure
designed to help shareholders engage with portfolio companies without
falling foul of regulatory hurdles – but says clarifications are
Specifically, CII is pleased with new Rule 13d-6(c), which would spell
out the circumstances under which two or more persons may communicate
and consult with one another and engage with a company without being
treated as a group that must comply with beneficial ownership
is part of the SEC’s proposed
rule amendments governing beneficial ownership reporting
under Securities Exchange Act Sections 13(d) and 13(g). The proposals
are widely seen as an effort to increase market transparency – with
the potential impact of making it more difficult for activist
investors to quietly build stakes in companies.
element of the proposals that has gained most attention are proposed
changes to Regulation 13D-G that would accelerate the
filing deadlines for Schedule 13D beneficial ownership reports from 10
days to five days and require that amendments be filed within one
deadline for comments on the proposed change was April 11.
13D AND 13G
In CII’s comment letter to the SEC, the group’s general counsel Jeff
Mahoney does not address measures such as the speedier reporting
requirement. Rather, he discusses proposed Rule 13d-6(c), which the
rule summary states is intended to ‘clarify and affirm the operation’
of Rule 13D and Rule 13G to permit investors ‘to communicate and
consult with each other, jointly engage issuers and execute certain
transactions without being subject to regulation as a group.’
writes: ‘This clarification is important to CII members, who often
communicate with each other and with other shareholders regarding
corporate governance issues at portfolio companies. In addition, CII
members may collaborate with other shareholders to engage with board
members and management at specific companies on issues of concern.’
These collaborations may involve engagement with individual companies
on specific matters or may involve investor coalitions addressing
topics on a broader scale, he notes.
experience indicates that these types of dialogues are beneficial to
investors and companies alike,’ Mahoney says. ‘Such engagements do not
raise any issues with respect to control of a company or efforts to
influence control at a given company. Indeed, these engagements
reflect the sort of communications and dialogues that the [SEC] has
been promoting for the past 30 years.’
welcomes Rule 13d-6(c) as a means to clarify the rules of engagement
and to avoid chilling communications both between investors and with
their portfolio companies. But it notes the ways in which shareholders
engage with portfolio companies and with other shareholders have
changed since the rule was last updated and argues any rule changes
should not upend these.
example, CII urges the SEC to clarify that the exemption from being
subject to regulation as a group in proposed Rule 13d-6(c) is
available to shareholders engaged in ‘vote no’ campaigns regarding
individual board candidates in uncontested director elections.
notes over the past two decades director elections have shifted from
being a pro forma exercise through which the management slate is
always elected, to a process during which shareholders can vote ‘no’
to particular directors rather than ‘withholding’ their proxy.
practical matter, he says, ‘vote no’ campaigns offer a helpful means
for shareholders to target the performance of individual directors
without involving the sort of corporate control issues that led to the
adoption of Section 13 and Rule 13D.
example, if shareholders believe that a company’s executive
compensation policies are flawed… there is value in being able to
launch a ‘vote no’ campaign against the chair and possibly other
members of the board’s compensation committee,’ Mahoney writes. ‘Such
campaigns exist at this time, with the proponents often posting exempt
solicitations to other shareholders on the commission’s Edgar system.
The council sees no reason to exclude such efforts or similar efforts
from the exemption in proposed Rule 13d-6(c).’
also urges the SEC to clarify that the exemption under Rule 13d-6(c)
is available to shareholders who do not seek to change or influence
control of the board even though they engage with the company and/or
other shareholders regarding the need for new management leadership.
addition, Mahoney states there are ambiguities in the text of both
prongs of the proposed Rule 13d-6(c) that he urges the SEC to address
to avoid chilling shareholder communications.
IR Media Group Ltd. 1995 - 2022 All rights reserved.