Ever since the SEC proposed amendments to increase the Form 13F reporting thresholds, there has been ongoing commentary voicing concerns. A recent MarketWatch opinion piece from Ethan Klingsberg and Elizabeth Bieber of Freshfields does a nice job explaining why, if adopted, the rules could ultimately make things more difficult for company directors — and we could add to that most everyone involved in shareholder engagement efforts.
The authors note how off-season shareholder engagement has evolved to become “de rigueur for public companies.” During proxy season, asset managers and governance specialists are swamped and pressed for time, which as many corporate secretaries have learned, has made off-season shareholder engagement a priority. As investors look to engage with companies and sometimes request executives and directors be part of those conversations, the authors acknowledge the development has been good for business. Even though there are still periodic activist campaigns, the authors note that a spectrum of shareholders are engaging in constructive dialogue with companies and then explain what could happen if the proposed amendments are adopted:
But all of these positive developments hinge on one factor: knowing who your shareholders are. Right now, mega-shareholders (those owning more than 5% of the outstanding stock) make mandatory filings, but for many companies, there are large numbers of institutional shareholders under this threshold that boards want to take into account and to which they want to organize outreach.
The way that these shareholders are identified is by the quarterly filings on Form 13F. The SEC has proposed to cut back the 13F filing requirement dramatically, with boards ceasing to have visibility on holdings by 4,500 institutional investment managers representing approximately $2.3 trillion in assets, according to one SEC commissioner. Only the most proactively vocal shareholders and the largest shareholders will be visible to boards.
Today in response to 13F filings, companies are able to proactively reach out to shareholders to help educate shareholders and understand their views. We should keep the board-shareholder dynamic healthy and constructive rather than impeding it by tearing down the 13F regime.
-Lynn Jokela, TheCorporateCounsel.net September 14, 2020
