The SEC's Division of Corporation Finance recently issued new guidance regarding when shareholders can file beneficial ownership reports on Schedule 13G. While the 11 February 2025 Compliance and Disclosure Interpretation (C&DI) maintains the same fundamental principles as before, it adopts a more nuanced approach to what constitutes "changing or influencing control of the issuer."
What Hasn't Changed
The basic framework remains intact: shareholders can still file on Schedule 13G if their securities weren't acquired or held with the purpose of changing or influencing issuer control. The guidance continues to prohibit using Schedule 13G when advocating for clear "control" transactions, such as:
- Sale of the issuer
- Sale of significant assets
- Restructuring
- Contested director elections
What Has Changed
The new guidance takes a more detailed look at how shareholders engage with management. While simply discussing views or voting decisions remains acceptable, the C&DI now explicitly addresses pressure tactics. Specifically, shareholders might lose Schedule 13G eligibility if they:
- Exert pressure on management to implement specific measures
- Condition their support for director nominees on the adoption of particular policies
- Link their voting decisions to management's acceptance of their recommendations
Practical Impact
This interpretation represents more of a tone shift than a substantive change in policy. However, it may cause institutional investors to think twice about their engagement strategies. Those who currently file on Schedule 13G might become more cautious about how they communicate their voting policies, particularly if those policies include withholding support from directors at companies with inconsistent practices.
The guidance suggests that while engagement remains acceptable, the manner and context of that engagement matter more than previously emphasized. Shareholders will need to carefully consider how they frame their discussions with management to maintain their Schedule 13G eligibility.
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