It’s been a whirlwind week in the corporate governance world. Recent announcements from the SEC on shareholder proposal guidance and the future of its climate disclosure rules, along with ISS’s decision to pause diversity considerations in U.S. director election assessments, have dominated the news. While each development is headline-worthy, we think the least discussed of these announcements relating to the SEC’s revised guidance on shareholder engagement and the types of communications that may trigger a Schedule 13D filing could prove the most consequential.
According to the SEC’s revised Question 103.12 under Exchange Act Sections 13(d) and 13(g) C&DIs (February 2025), merely “discussing with management [a shareholder’s] views on a particular topic and how its views may inform its voting decisions” does not disqualify an investor from using Schedule 13G. However, if the shareholder “goes beyond such a discussion” and “explicitly or implicitly condition[s] its support of one or more of the issuer’s director nominees” on the adoption of specific changes, the SEC may deem this “influencing control,” which may result in a Schedule 13D filing requirement. In its guidance, the SEC specifically cites examples such as removing a staggered board, altering executive compensation, or implementing certain social or environmental policies.
As we enter the critical in-season proxy engagement window, the immediate spotlight will turn to Vanguard, BlackRock, and State Street (commonly referred to as the Big Three “passives,” ironically), and any shifts in how they administer their stewardship and voting activities will be closely watched. Longer term, the impact of this guidance could extend far beyond these firms, as a broader range of investors - even those not typically subject to 13G requirements - may reassess their engagement strategies, potentially opting for less direct dialogue or more generalized voting policies to avoid the risk of being seen as “influencing control.” For companies that have spent years fostering direct relationships with key shareholders, any indication that investors might engage less or become less forthcoming in their discussions would likely be viewed a significant, and unwelcome, development.
More to come.
