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Lawyers, investors and the governance community continue to gnash teeth over the potentially significant rule changes by the SEC tightening the reins of 13G filers.
The rule, as previously reported, could require investors that push for specific governance changes to file under 13D instead of the simpler 13G. Now, there is simply no way the big index funds will ever file a 13D, so the text of the new rules is being reviewed with Talmudic scrutiny.
At Tulane, SEC honcho Tiffany Posil tried to provide additional context for the changes, arguing that shareholders can provide voting guidelines and policies and not worry about tripping over G to D but investors seeking to “apply pressure on management unless management makes changes to align with the shareholder’s expectations” would be required to filed under 13D.
Legal experts, including lawyers at Gibson Dunn, warned that the rules could “chill institutional investors’ willingness to engage with companies as candidly.” Skadden recommended that “companies should be prepared to ask investors more broad-based questions, such as: “‘Did you get enough information to make an informed voting and/or investment decision.’”
Clearly Gottlieb suggests that the changes will likely increase the influence of proxy advisory firms like ISS and Glass Lewis and amplify the role of smaller institutional and retail investors, making it increasingly critical for companies to enhance their engagement with those audiences in any contested voting decisions. Worth also mentioning that at Council of Institutional Investors’ confab this week, ISS’s new head of proxy contest, Andrew Borek, outlined the analysis structure for deals and director nominations and talked through the firm’s recommendations on Disney and Starbucks last year.
Back in Delaware, 21 major law firms penned an open letter supporting SB 21 legislation, arguing that it is an essential step to maintain Delaware’s appeal for companies. CII put out a letter saying “the enactment of SB 21 could make Delaware substantially less attractive to institutional investors’ when evaluating where the corporations that they own should be incorporated.” Less attractive than what, Nevada or Texas?
Delaware Governor Matt Meyer made it clear he wasn’t wooing Elon Musk back to Delaware when he went on CNBC this week to discuss SB 21 and replied to a question about Musk and DOGE by asking Musk to “please stop cutting our federal government with a chainsaw.” A Texas Chainsaw maybe?
Speaking of Elon, his lawyers launched an appeal in Delaware’s Supreme Court to restore the $56 billion comp package struck down twice by the Chancery Court. Musk and his lawyers argue the court misapplied its “entire fairness” standard, noting Tesla shareholders had twice previously approved his compensation plan. It’s well known the big institutions such as Vanguard voted in favor of Mr. Musk’s pay package in the second vote, so the Chancery Court is clearly saying it knows better than sophisticated investors with astute stewardship teams who vote with their eyes wide open.
Have a great weekend,
GPP
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