The SEC published updated Compliance and Disclosure Interpretations on the filing of Schedules 13D and 13G/Shareholder Engagement.

• Revised Question 103.11 – This CDI was revised to state that a shareholder’s ability to file on Schedule 13G in lieu of the Schedule 13D otherwise required will be informed by the meaning of “control” as defined in Exchange Act Rule 12b-2. 
• New Question 103.12 – This new CDI outlines the circumstances under which a shareholder’s engagement with management would cause the shareholder to lose its eligibility to report on Schedule 13G. In particular, Schedule 13G may be unavailable to a shareholder who goes beyond discussion and exerts pressure to implement certain measures, such as a shareholder who either:  
  • Urges a company to 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 company to adopt the recommendation, explicitly or implicitly conditions the shareholder’s support of one or more of the company’s director nominees on the company’s adoption of the shareholder’s recommendation 
  • Discusses with management its voting policy on a particular topic and how the company fails to meet the shareholder’s expectations on such topic, and, to apply pressure on management, states or implies during any such discussions that the shareholder will not support one or more of the company’s director nominees at the next election unless management makes changes to align with its expectations

The new CDI 103.12 may force institutional investors and asset managers to choose between engaging on voting policy topics and consequences versus maintaining 13G eligibility. This will make significant stockholders more circumspect in their engagement discussions with companies. For example, in February, BlackRock and Vanguard temporarily paused engagement with companies to evaluate the impact of CDI 103.12. Both BlackRock and Vanguard have now resumed engagements. Likewise, in response to this new guidance, State Street added the following preface to its 2025 Global Proxy Voting and Engagement Policy:  

“When engaging with and voting proxies with respect to the portfolio companies in which we invest our clients’ assets, we do so on behalf of and in the best interests of the client accounts we manage and do not seek to change or influence control of any such portfolio companies…State Street Global Advisors will not apply any policies contained herein in any jurisdictions where State Street Global Advisors believes that implementing or following such policies would be deemed to constitute seeking to change or influence control of a portfolio company.”

Going forward, companies will need to be carefully attuned to what such investors may be saying or signaling in their engagement discussions. 

This article is part of a Fenwick "Securities Law Update" authored by David A. Bell, Ran Ben-Tzur, Amanda Rose, Wendy Grasso, and Merritt Steele.