US investors in ASX-listed companies have become much more guarded in recent board director engagements. Curiously, and unlike many Australian investors, they are cautious to ensure they are not seen to be exerting influence on company policies and practices.

These restricted engagements are not helpful for ASX board directors seeking to understand US investors’ positions on executive remuneration policies and frameworks, board structure and director elections, M&A, ESG policies and similar governance matters.

Here is why this is happening.

On 11 February 2025, the U.S. Securities and Exchange Commission (SEC) issued an updated Compliance and Disclosure Interpretation (CDI) on beneficial ownership reporting under Schedule 13D and 13G of the Exchange Act. This guidance sought to clarify when the SEC deems an investors’ holdings to be “passive”. Passive investors are eligible to register ownership of 5%+ of stock under Schedule 13G. This disclosure requirement is less onerous for a passive investor than that for other investors (that is, those that influence control). The latter are required to make a more onerous disclosure under Schedule 13D.

It is the definition of what constitutes influencing control that the SEC has sought to clarify. It is now clear that under certain circumstances, discussions relating to ESG or remuneration matters may fall under this definition.

The clarification notes that, ordinarily, an investor that discusses its views with management on a particular topic and how its voting decisions may be formed, would not be disqualified from a Schedule 13G disclosure. However, if that discussion is considered to be “exerting pressure” on management, the more onerous Schedule 13D disclosure would be required.

An SEC example of influencing control might be where an investor “discusses with management its voting policy on a particular topic and how the issuer fails to meet the shareholder’s expectations on such topic, and …  states or implies during any such discussions that it will not support one or more of the issuer’s director nominees at the next director election unless management makes changes”.

So, in essence, the guarded engagements are because the investor has been advised to ensure their engagements with the issuer do not “exert pressure” on management to make changes to policies or practices on ordinary matters including remuneration and support for director nominees.

This effectively means that US investors with 5% + holdings will continue to be guarded in their engagements until they can be satisfied about the guidance.

The message for directors going into these briefings is to be prepared for the limited discussion and with little or no indication of the investors’ views on matters under discussion. Not helpful, we agree, but at least forewarned is forearmed.

Read the full SEC guidance HERE.

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