SEC Staff posted new Exchange Act Sections 13(d) and 13(g) Compliance & Disclosure Interpretation Question 103.12 today regarding the impact of shareholders’ recommendations and communications to management on their Schedule 13G eligibility, specifically as relates to the “securities not acquired or held for the purpose of or with the effect of changing or influencing the control of the issuer” eligibility requirements in the context of shareholder communications regarding director accountability for the company’s failure to adopt a particular sought-after position or practice.
Notably, the new C&DI provides:
For example, Schedule 13G may be unavailable to a shareholder who:
· recommends that the issuer remove its staggered board, switch to a majority voting standard in uncontested director elections, eliminate its poison pill plan, change its executive compensation practices, or undertake specific actions on a social, environmental, or political policy and, as a means of pressuring the issuer to adopt the recommendation, explicitly or implicitly conditions its support of one or more of the issuer’s director nominees at the next director election on the issuer’s adoption of its recommendation; or
· discusses with management its voting policy on a particular topic and how the issuer fails to meet the shareholder’s expectations on such topic, and, to apply pressure on management, states or implies during any such discussions that it will not support one or more of the issuer’s director nominees at the next director election unless management makes changes to align with the shareholder’s expectations. [Feb. 11, 2025]
Stay tuned for analysis and commentary as to the potential implications of the CDI on shareholder proposals and engagement.