Beyond “Market Transparency”: Investor Disclosure and Corporate Governance, Essays (university) of Corporate Finance

Download Beyond “Market Transparency”: Investor Disclosure and Corporate Governance and more Essays (university) Corporate Finance in PDF only on Docsity! 1393 Stanford Law Review Volume 74 June 2022 ARTICLE Beyond “Market Transparency”: Investor Disclosure and Corporate Governance Alexander I. Platt* Abstract. The ability to identify a firm’s shareholders is essential to modern corporate- governance practice. Corporate managers, activist hedge funds, shareholder-proposal sponsors, and other market actors all use this information in their efforts to shape corporate action. They can do so, however, only by dint of regulatory fiat. Since the 1970s, the U.S. Securities and Exchange Commission (SEC) has required institutional investors to disclose their equity holdings every quarter on Form 13F. Today, these disclosures provide the best (and often the only) identifying information about a firm’s shareholders. But while countless studies in law and finance rely on 13F data, none have turned the microscope around to examine the program itself. * Associate Professor of Law, University of Kansas School of Law. For helpful comments, I thank Afra Afsharipour, Jordan Barry, Robert Bartlett, Chris Bradley, Alon Brav, Jacob Bronsther, William W. Clayton, Madison Condon, Lawrence Cunningham, Elisabeth de Fontenay, Shahar Dillbary, Christopher R. Drahozal, Michael Guttentag, John Head, Virginia Harper Ho, Scott Hirst, Gus Hurwitz, Howell Jackson, Guha Krishnamurthi, Richard Levy, Tom Lin, Geeyoung Min, Donna Nagy, Yaron Nili, Uma Outka, James Park, Menesh Patel, Jari Peters, Carla Reyes, Thomas Reyntjens, Bernard S. Sharfman, Michael Simkovic, Holger Spamann, Paul Stancil, Roberto Tallarita, James Tierney, Andrew Torrance, Kyle Velte, Matthew Wansley, Lua Yuille, Corey Rayburn Yung, and David Zaring; anonymous individuals employed by leading hedge fund activists; and participants in the Wharton Financial Regulation Conference, the National Business Law Scholars Conference, the Midwestern Law and Economics Association Annual Conference, the Corporate Law Academic Workshop Series, the Securities Regulation Emerging Voices Panel at the 2022 AALS Annual Meeting, the Business Associations Works-in-Progress Panel at the 2022 AALS Annual Meeting, the Central States Law School Association Annual Scholarship Conference, the Rocky Mountain Junior Scholars Forum, the Finance Faculty Seminar at the University of Kansas School of Business, and faculty workshops at the University of Nebraska College of Law and the University of Kansas School of Law. Special thanks to Robert J. Jackson, Jr., for encouraging me to write on this topic. For excellent research assistance, I thank Sarah Buchanan, University of Kansas School of Law, 2021. For superb editorial and substantive suggestions, I thank all the editors of the Stanford Law Review, especially Aru Gonzalez, Morgan K. Smiley, and Audrey Spensley. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1394 This Article fills this gap by comprehensively mapping 13F’s significant impacts across a wide range of corporate-governance processes. It examines numerous ways 13F shapes the corporate-governance ecosystem, most of which have never previously been identified, much less closely examined. Among other findings, it shows that 13F likely mitigates the short-term bias of hedge fund activism; bolsters institutional-investor advocacy on environmental, social, and governance topics; promotes more “collaborative” engagements between shareholders and managers; drives a robust “competition for votes” ahead of key elections; and facilitates the anticompetitive effects of common ownership. There is an urgent need to understand these effects. In 2020, the SEC proposed eliminating 90% of 13F reports. Now, there are proposals pending before the Agency and Congress to expand the volume and frequency of reporting. But these proposals and the commentary surrounding them universally fail to consider 13F’s role in corporate governance. In addition to mapping 13F’s current impacts, this Article also analyzes how each proposed reform would reshape this landscape. Surprisingly, I find several areas where shareholders and other corporate stakeholders could be made better off with less transparency about institutional holdings. As policymakers weigh changes to 13F, they should look past the impact on “market transparency” to consider how this information is actually being used on the ground, by whom, and to what ends. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1397 Introduction Every quarter, hedge funds and mutual funds have to report what stocks and bonds they own, using the U.S. Securities and Exchange Commission’s Form 13F. I forget why? —Matt Levine, Bloomberg1 An upstart hedge fund recently took on ExxonMobil and won. The fund, Engine No. 1, bought $50 million worth of Exxon stock,2 dropped another $30 million persuading fellow shareholders that Exxon was not transitioning quickly enough away from fossil fuels, and won enough votes at the company’s 2021 shareholder meeting to get three of its candidates elected to the board of directors.3 Remarkably, Engine No. 1 achieved this victory despite holding just 0.02% of Exxon’s outstanding shares.4 When success depends on the ability to win support from other shareholders, as it does for activists like Engine No. 1, the ability to identify those shareholders is essential. Activists may evaluate a potential corporate target’s shareholder base to assess their prospects before even launching a campaign. They may also tailor campaigns to appeal to the particular preferences of these shareholders. And once a campaign is underway, activists may also use this information to support targeted lobbying efforts. Engine No. 1, for instance, made calls to key investors to shore up support in the final hours of its successful campaign.5 Nor are activists the only parties who benefit from the ability to identify a firm’s shareholders. Managers of targeted firms also may leverage this information to aid in their own lobbying efforts. Exxon, for instance, made “calls to investors in a last-ditch attempt to win their votes.”6 Before the vote, managers also may use this information to gauge an activist’s prospects of success and may be willing to negotiate settlements with the most promising 1. Matt Levine, Money Stuff: We Has Decided to Make Money, BLOOMBERG (July 13, 2020, 8:59 AM PDT) (emphasis added), https://perma.cc/5KFQ-F567. 2. Engine No. 1 LLC, Holdings Report (Form 13F), Information Table (May 17, 2021), https://perma.cc/LPZ3-EXT5 (to locate, select “View the live page,” then select “Form13F_InfoTable.html”). 3. Press Release, ExxonMobil, ExxonMobil Updates Preliminary Results on Election of Directors (June 2, 2021), https://perma.cc/5UMQ-VCL9; Justin Baer, Dawn Lim & Cara Lombardo, Investors Give Exxon Payback for Frustrations on Strategy and Climate, WALL ST. J. (updated May 28, 2021, 4:34 PM ET), https://perma.cc/YCH6-RMLC. 4. Christopher M. Matthews, Activist Likely to Gain Third Seat on Exxon Board, WALL ST. J. (updated June 2, 2021, 6:11 PM ET), https://perma.cc/573Z-LVD6. 5. Baer et al., supra note 3. 6. Id. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1398 campaigns, just as Exxon did with another hedge fund that had launched a campaign a few weeks before Engine No. 1.7 This information—the identities of a company’s investors—seems elementary, if not downright primitive. In today’s world of algorithmic traders, machine learning, and robo-advisors, a list of a company’s shareholders doesn’t exactly get the blood pumping. It is easy to see how it could come to be taken for granted. And so it has. The best—and, in many cases, the only—source for information about a firm’s shareholders is produced under a mostly forgotten provision of federal securities law. For forty years, institutional investors like mutual funds and hedge funds have been disclosing their equity-portfolio holdings every quarter as required under section 13(f) of the Securities Exchange Act of 1934 (Exchange Act) and the rules promulgated under that statute (hereinafter, collectively, 13F).8 And yet the possibility that 13F plays a role in activism or other corporate-governance interactions has been almost completely overlooked. Although countless studies in law and finance rely on 13F disclosures, none have turned the microscope around to examine the program itself.9 Similarly, accounts of the federal regulations that mediate the relationship between investors and corporations uniformly omit 13F.10 7. Christopher M. Matthews & Dave Sebastian, Exxon Adds New Board Members amid Activist Pressure, WALL ST. J. (updated Mar. 1, 2021, 12:15 PM ET), https://perma.cc/ KL3R-6AV5. 8. Exchange Act § 13(f), 15 U.S.C. § 78m(f); 17 C.F.R. § 240.13f-1 (2021); see also infra Part I.B.3 (discussing the lack of adequate substitute sources of this information). 9. See infra Part I.A (surveying the extremely limited legal and financial literature on 13F’s role in corporate governance). 10. See INSTITUTIONAL INVESTOR ACTIVISM: HEDGE FUNDS AND PRIVATE EQUITY, ECONOMICS AND REGULATION 549-759 (William W. Bratton & Joseph A. McCahery eds., 2015) (devoting over 200 pages, the entirety of Part IV, to “the regulatory framework” governing institutional investors’ role in corporate governance without mentioning 13F (capitalization altered)); MARK J. ROE, STRONG MANAGERS, WEAK OWNERS: THE POLITICAL ROOTS OF AMERICAN CORPORATE FINANCE 21-145 (1994) (showing, through detailed case studies of banking, mutual fund, pension fund, and insurance regulation— but without mentioning 13F—how U.S. law has constrained institutional-investor influence on corporations); John C. Coates IV, Thirty Years of Evolution in the Roles of Institutional Investors in Corporate Governance, in RESEARCH HANDBOOK ON SHAREHOLDER POWER 79, 87-88 (Jennifer G. Hill & Randall S. Thomas eds., 2015) (reviewing the “impact of law on institutional owners in governance” and discussing “disclosure obligations in sections 10(b), 13(d), 14(a), and 16 of the Securities and Exchange Act of 1934,” as well as the Employee Retirement Income Security Act of 1974 (ERISA) and proxy-voting regulations, but failing to mention 13F (capitalization altered)); ALAN PALMITER, FRANK PARTNOY & ELIZABETH POLLMAN, BUSINESS ORGANIZATIONS: A CONTEMPORARY APPROACH 472-74 (3d ed. 2019) (discussing legal restrictions that mediate the relationship between institutional investors and corporations, including blockholder disclosure, Regulation Fair Disclosure, and the short-swing profits rule, but not 13F); LISA M. FAIRFAX, SHAREHOLDER DEMOCRACY: A PRIMER ON SHAREHOLDER footnote continued on next page Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1399 But 13F can no longer be ignored. In 2020, the U.S. Securities and Exchange Commission (SEC) pulled the provision out of obscurity and onto the chopping block, proposing to eliminate about 90% of current reports.11 Now there is a concerted effort to significantly expand the reporting required under this regime.12 Although these reforms point in opposite directions, they have one thing in common: Each ignores the impact of 13F on corporate governance.13 This Article fills that gap. I present an original, holistic account of 13F’s impact on corporate governance.14 I trace the impact of this provision and the information it generates across five key domains: hedge fund activism,15 shareholder proposals,16 shareholder litigation,17 engagement,18 and what I call ACTIVISM AND PARTICIPATION 7-11 (2011) (discussing federal regulations “impacting shareholder rights,” including proxy-voting rules, the Investment Company Act, the Investment Advisers Act, exchange-listing standards, the Sarbanes–Oxley Act, and the Dodd–Frank Act, but not 13F (capitalization altered)); JAMES P. HAWLEY & ANDREW T. WILLIAMS, THE RISE OF FIDUCIARY CAPITALISM: HOW INSTITUTIONAL INVESTORS CAN MAKE CORPORATE AMERICA MORE DEMOCRATIC 148-51 (2000) (discussing key federal regulations governing institutional voice, including blockholder disclosure, the short- swing profits rule, ERISA, and proxy-solicitation rules, but not 13F); MARC I. STEINBERG, THE FEDERALIZATION OF CORPORATE GOVERNANCE (2018) (discussing expanding the role of the U.S. Securities and Exchange Commission (SEC) in corporate governance—including through the regulation of insider trading, shareholder proposals, and tender offers, enforcement against directors and officers, and more—but not 13F); Amil Dasgupta, Vyacheslav Fos & Zacharias Sautner, Institutional Investors and Corporate Governance, 12 FOUNDS. & TRENDS FIN. 276, 293-320 (2021) (reviewing the “legal environment” surrounding institutional investors and corporate governance, including the fiduciary duties governing institutional voting, proxy-solicitation rules, shareholder proposals, proxy fights, proxy advisors, blockholder disclosure, and restrictions on communication, but not 13F); JOHN C. COFFEE, JR., HILLARY A. SALE & M. TODD HENDERSON, SECURITIES REGULATION: CASES AND MATERIALS 43-49 (13th ed. 2015) (discussing SEC rules governing proxy solicitation that mediate the relationship between institutional investors and companies, the regulation of takeover contexts, the short-swing profits rule, blockholder disclosure, hedge fund and mutual fund registration, and ERISA, but not 13F). 11. Reporting Threshold for Institutional Investment Managers, 85 Fed. Reg. 46,016 (July 31, 2020) (to be codified at 17 C.F.R. pts. 240, 249). 12. See infra Parts I.C.2-.3 (discussing proposals). 13. See infra Part I.C. 14. I use the term “corporate governance” here in a procedural sense, not a normative one—referring to the “set of processes and practices that govern how a company is managed.” See Dorothy S. Lund & Elizabeth Pollman, Essay, The Corporate Governance Machine, 121 COLUM. L. REV. 2563, 2563 (2021); Merritt B. Fox, Required Disclosure and Corporate Governance, 62 LAW & CONTEMP. PROBS. 113, 115 (1999). 15. See infra Part II.A. 16. See infra Part II.B. 17. See infra Part II.C. 18. See infra Part II.D. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1402 This Article’s original account shows that the consequences of the informational subsidy provided by 13F are complex. 13F does not uniformly favor a particular constituency; it advantages shareholders over managers in some domains, and the opposite in others. Nor is there an easy conclusion regarding the net welfare effects of the program; some impacts seem obviously beneficial, while others seem just as obviously harmful, and many elide easy assessment. Nevertheless, no substantial reform of 13F may be responsibly undertaken without accounting for how the reform will alter the corporate-governance landscape. To that end, this Article analyzes how each of the major proposed reforms would likely reshape the governance landscape by changing the impacts tracked here. Contrary to conventional wisdom, I find that, in several areas, shareholders and/or other corporate stakeholders might be made better off with less transparency about institutional holdings.27 My findings pose a direct challenge to a dominant theme in the universally hostile28 reaction to the SEC’s 2020 proposal to curtail 13F: that the 13F program’s core purpose is to promote “market transparency.”29 The proposals to expand the program are similarly grounded in the alleged importance of expanding “transparency.”30 I argue that this mode of analysis is misguided; “transparency” is not, by itself, a sound basis for policymaking in this domain.31 The information produced by 13F has unequal effects—it advantages certain groups over others and skews the results of governance processes. To evaluate the program, policymakers must look past its effect on “transparency” to examine how the information is actually being used in the marketplace, by whom, and to what ends.32 The findings presented here that 13F has been skewing corporate- governance outcomes also support a broader critique. Corporate scholars often rely on the outcomes of purportedly neutral governance processes as evidence of efficiency or the “market’s voice,” without attending to the contingent forces that distort those processes.33 The fact that an obscure and overlooked 27. See infra Part III.A. 28. Chuck Mikolajczak, Goldman Sachs Expects Rejection of SEC Plan to Raise 13F Reporting Threshold, REUTERS (Oct. 19, 2020, 7:33 AM), https://perma.cc/NR52-KC2S (noting that 99% of public comments opposed the proposed rule). 29. See infra Part III.B (collecting many examples). 30. See infra Part I.C.3. 31. Cf. David E. Pozen, Transparency’s Ideological Drift, 128 YALE L.J. 100 (2018) (discussing the political ambivalence of government transparency). 32. See infra Part III.B. 33. For recent critiques, see Jedediah Britton-Purdy, David Singh Grewal, Amy Kapczynski & K. Sabeel Rahman, Building a Law-and-Political-Economy Framework: footnote continued on next page Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1403 disclosure program (13F) has been systematically skewing governance outcomes for many years provides another reason to be wary of easy inferences from the outcomes of these processes. These outcomes may or may not be efficient, but the mere fact that they come out the way they do cannot be taken as dispositive one way or the other.34 This Article makes five important contributions: First, it contributes to an important ongoing policy debate in Congress and the SEC regarding 13F reform.35 The recent flurry of proposals to expand or contract 13F have almost entirely neglected the role 13F plays in corporate governance or how that role would be altered by the proposed changes.36 Second, it contributes to the literature analyzing various levers of securities regulation that mediate the relationship between institutional investors and corporations they own.37 This relationship has never been more important— for scholars, markets, and the economy as a whole.38 Yet, to date, scholars have ignored 13F’s role in allocating power among these actors. Third, it contributes to the scholarship analyzing key corporate- governance processes like hedge fund activism, shareholder proposals, shareholder litigation, engagement, and tacit shareholder influence.39 Theoretical and empirical scholarship analyzing these processes has failed to recognize, test, or control for the role that 13F plays in driving the processes’ outcomes. Fourth, it illuminates some of the most important and controversial recent phenomena in corporate governance, including the role of institutional investors in pushing for ESG reforms,40 coordination among shareholders,41 collaboration between shareholders and management,42 and the anticompetitive effects of common ownership.43 As this Article shows, 13F plays an important role in driving each of these trends. Beyond the Twentieth-Century Synthesis, 129 YALE L.J. 1784, 1804-06 (2020); and Lund & Pollman, supra note 14. 34. See infra Part III.C. 35. See infra Parts I.C, III.A. 36. See infra Part I.C (discussing recent proposals to reform 13F). 37. See infra Part I.A. 38. See infra Part I.A. 39. See infra Part II. 40. See infra Parts II.A.2, II.B, II.D.3, II.E.1. See generally Condon, supra note 25; Dimson et al., supra note 24. 41. See infra Parts II.A.4, II.B.3, II.D.3. See generally Enriques & Romano, supra note 24; Matvos & Ostrovsky, supra note 24; Dimson et al., supra note 24. 42. See infra Parts II.A.6, II.B.4, II.C.4, II.D. See generally Fisch & Sepe, supra note 22; Haan, supra note 22; Bebchuk et al., supra note 22. 43. See infra Part II.E.2. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1404 Fifth, the Article contributes to the literature on the relationship between mandatory disclosure and corporate governance.44 To date, this literature has mainly focused on issuer disclosure, not investor disclosure. In the modern era of significant (and growing) shareholder power, policy choices regarding the level of transparency imposed on investors may have impacts no less significant than those flowing from issuer disclosure rules. This Article proceeds in three parts. Part I explains why, as a matter of both policy and law, an understanding of 13F’s impact on corporate governance is urgently needed. Part II presents that analysis, examining twenty impacts across five governance domains. Part III discusses key implications of this analysis for 13F reform, the limited value of “transparency” as a north star for financial regulation, and the limited value of “transparency” for the “efficiency” of corporate governance.45 I. The Need To Understand 13F’s Impacts on Corporate Governance A. Institutional Investors, Securities Regulation, and Corporate Governance For much of the twentieth century, corporate shareholders were fragmented, with limited ability and incentive to monitor corporate managers.46 Corporate managers possessed wide discretion to run companies as they saw fit without facing meaningful accountability from their shareholders.47 But things changed.48 Today, households account for just 38% of direct stock ownership (down from 93% in 1950).49 The rest is held by 44. E.g., Paul G. Mahoney, Mandatory Disclosure as a Solution to Agency Problems, 62 U. CHI. L. REV. 1047, 1111 (1995); Fox, supra note 14, at 114. 45. This Article focuses on 13F’s impact on corporate governance. Other potentially important effects of the program—on policymaking, investing, and systemic risk—are beyond its scope. 46. See ADOLF A. BERLE, JR. & GARDINER C. MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY 110 tbl.12 (1932). But see ROE, supra note 10 (highlighting the role of law and politics in limiting the power of institutional investors during this period). 47. Harwell Wells, Shareholder Power in America, 1800-2000: A Short History, in RESEARCH HANDBOOK ON SHAREHOLDER POWER, supra note 10, at 13, 20-21. 48. Ronald J. Gilson & Jeffrey N. Gordon, The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights, 113 COLUM. L. REV. 863, 865 (2013) (“[T]he Berle–Means premise of dispersed share ownership is now wrong.”). For historical accounts of the institutionalization of stock ownership, see, for example, Edward B. Rock, Institutional Investors in Corporate Governance, in THE OXFORD HANDBOOK OF CORPORATE LAW AND GOVERNANCE 363 (Jeffrey N. Gordon & Wolf- Georg Ringe eds., 2018); HAWLEY & WILLIAMS, supra note 10, at 42-68; and Gilson & Gordon, supra, at 878-88. 49. Dasgupta et al., supra note 10, at 278 tbl.1.1. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1407 shareholders with shorter-term investment horizons may predominate, leading the firm to generate short-lived increases in stock price at the expense of long-term growth, sound risk management, and investments in research and development.66 Federal securities regulation has been a frequent battleground for proponents and critics of shareholder power. The SEC has access to many regulatory levers to tilt the corporate-governance playing field in favor of one side or the other.67 Scholars have debated the governance impacts of SEC actions on numerous issues, including proxy access,68 the regulation of proxy advisors,69 and shareholder proposals,70 among many others. The SEC’s blockholder-disclosure rules provide a key precedent. Under the Williams Act as amended in 197071 and the SEC’s implementing regulations 66. See generally sources cited supra note 65. 67. See STEINBERG, supra note 10; Mark J. Roe, Delaware’s Competition, 117 HARV. L. REV. 588, 611-20 (2003); see also Fenner Stewart, Jr., The Primacy of Delaware and the Embeddedness of the Firm, in THE EMBEDDED FIRM: CORPORATE GOVERNANCE, LABOR, AND FINANCE CAPITALISM 104, 107-15 (Cynthia A. Williams & Peer Zumbansen eds., 2011) (surveying the academic debate over the federal role in corporate governance through securities regulation). 68. The SEC’s proxy-access rule would have enabled shareholders to nominate directors and have those directors included in the companies’ proxy statements. Facilitating Shareholder Director Nominations, 75 Fed. Reg. 56,668, 56,782 (Sept. 16, 2010) (codified in scattered sections of 17 C.F.R.). The rule was subsequently struck down by the D.C. Circuit in Business Roundtable v. SEC, 647 F.3d 1144, 1146 (D.C. Cir. 2011), but not before prompting a vigorous debate. Compare, e.g., Lucian A. Bebchuk & Scott Hirst, Private Ordering and the Proxy Access Debate, 65 BUS. LAW. 329 (2010) (arguing that the SEC proxy-access rule would improve firm performance and value), with Joseph A. Grundfest, The SEC’s Proposed Proxy Access Rules: Politics, Economics, and the Law, 65 BUS. LAW. 361 (2010) (arguing that the SEC proxy-access rule has nothing to do with shareholder wealth maximization or optimal governance and merely reflects rent seeking by dominant politically connected constituencies). 69. Compare PAUL ROSE & CHRISTOPHER J. WALKER, CTR. FOR CAP. MKTS. COMPETITIVENESS, EXAMINING THE SEC’S PROXY ADVISOR RULE 5 (2020), https://perma.cc/BGY3-KSC8 (praising the SEC’s new regulation of proxy advisors as “a step in the right direction to address deficiencies in the proxy advisory system”), with George W. Dent, Jr., A Defense of Proxy Advisors, 2014 MICH. ST. L. REV. 1287 (arguing that calls for SEC regulation of proxy advisors are mostly unwarranted). 70. Virginia Harper Ho, From Public Policy to Materiality: Non-financial Reporting, Shareholder Engagement, and Rule 14a-8’s Ordinary Business Exception, 76 WASH. & LEE L. REV. 1231, 1235, 1244-52 (2019) (arguing that the SEC, through its limited interpretation of Rule 14a-8, has hindered the ability of shareholders’ proposals to change corporate practices); Kobi Kastiel & Yaron Nili, The Giant Shadow of Corporate Gadflies, 94 S. CAL. L. REV. 569, 574 (2021) (arguing that SEC regulation of shareholder proposals has the potential to limit the influence of powerful individual shareholders); see also infra Part II.B.1. 71. See Act of Dec. 22, 1970, Pub. L. No. 91-567, 84 Stat. 1497 (codified as amended in scattered sections of 15 U.S.C.). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1408 (referred to as Rule 13D), any shareholder who acquires 5% or more of a company’s shares with the “purpose, or with the effect, of changing or influencing the control of the issuer” must file a disclosure with the Agency within ten days.72 In 2011, leading management-side firm Wachtell, Lipton, Rosen & Katz petitioned the SEC to tighten this regime by (among other things) shortening the disclosure window under Rule 13D from ten days to one and by prohibiting investors from acquiring any additional beneficial ownership during the time between acquisition of 5% ownership and making a public disclosure.73 Wachtell argued that the reporting regime was failing “to fulfill its stated purposes” of increasing “market transparency” and was instead enabling “aggressive investors” to secretly continue to accumulate substantial shares during the ten-day lag period.74 Lucian Bebchuk and Robert Jackson, Jr., responded to the proposal to amend Rule 13D with a more complete account of the costs and benefits of the regime.75 They challenged Wachtell’s premise that “more prompt disclosure of information is unambiguously desirable under principles of market transparency”76 by showing that blockholders provide significant governance benefits77 and that these benefits were linked to the ten-day disclosure window.78 Tightening the disclosure window as Wachtell proposed would deter these blockholders from seeking to acquire a block in the first place, and therefore also reduce the benefits they provide to other investors.79 Bebchuk and Jackson also rejected Wachtell’s assertion that Congress’s purpose in enacting the Williams Act was to maximize transparency without regard to any impacts on corporate governance.80 They showed that the ten-day window was not a mere “ ‘gap’ left open by incompetent drafters”; to the contrary, Congress considered and rejected a proposal that would have prohibited any investor from acquiring more than 5% without making prior 72. 17 C.F.R. § 240.13d-1 (2021); Exchange Act § 13(d), 15 U.S.C. § 78m(d). 73. Wachtell, Lipton, Rosen & Katz, Comment Letter on Petition for Rulemaking Under Section 13 of the Securities Exchange Act of 1934, at 5 (Mar. 7, 2011), https://perma.cc/ JCL7-3W8V. 74. Id. at 2-3. 75. Lucian A. Bebchuk & Robert J. Jackson, Jr., The Law and Economics of Blockholder Disclosure, 2 HARV. BUS. L. REV. 39 (2012). 76. Id. at 41. 77. Id. at 47-49 (collecting studies). 78. Id. at 49-51 (explaining that a blockholder’s incentive to acquire a stake in a firm depends on his or her ability to acquire shares at a low price, and that the opportunity to do this ends as soon as the market learns of the blockholder’s presence). 79. Id. 80. Id. at 44. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1409 disclosures.81 Bebchuk and Jackson also analyzed the legislative history, showing that Congress understood the key corporate-governance benefits that could be provided by blockholders, and they offered additional evidence that such impacts had to be considered as part of any reform effort.82 Although Bebchuk and Jackson’s article was hardly the last word,83 their analysis changed the tenor of the debate. Any effort to reform Rule 13D now seemingly must address the specific corporate-governance impacts the two identified, and cannot merely appeal to notions of “transparency.” 13F plays a similarly vital role in facilitating interactions between and among shareholders and managers.84 Yet 13F has been all but ignored. While countless studies rely on the disclosures produced under this regime,85 these studies invariably take 13F for granted, not as an object for critical evaluation or even a variable to be controlled for. Legal scholarship examining 13F’s impact on corporate governance is virtually nonexistent.86 And, as discussed 81. Id. 82. Id. at 44-46. 83. For continued debate over the SEC’s blockholder-disclosure rules under Rule 13D, see, for example, Adam O. Emmerich, Theodore N. Mirvis, Eric S. Robinson & William Savitt, Fair Markets and Fair Disclosure: Some Thoughts on the Law and Economics of Blockholder Disclosure, and the Use and Abuse of Shareholder Power, 3 HARV. BUS. L. REV. 135, 140 (2013) (presenting an argument by a group of Wachtell lawyers that because a shortened disclosure window would be “consistent with” section 13(d)’s original “purpose of ensuring market transparency,” no “extensive cost–benefit analysis” would be necessary to justify the change (capitalization altered)); Gilson & Gordon, supra note 48, at 902-12; Alon Brav, J.B. Heaton & Jonathan Zandberg, Failed Anti-activist Legislation, 11 J. BUS. ENTREPRENEURSHIP & L. 329, 343-47 (2018); and Maria Lucia Passador, The Woeful Inadequacy of Section 13(d): Time for a Paradigm Shift?, 13 VA. L. & BUS. REV. 279, 280-81 (2019). 84. See infra Part II.D. 85. Antoinette Schoar & Haoxiang Zhu, MIT Sloan Sch. of Mgmt., Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 3 (Aug. 28, 2020) [hereinafter MIT Comment], https://perma.cc/W247-5R6A (noting the widespread use of 13F data by scholars). 86. According to Westlaw, eighty-seven law review articles, notes, or comments have cited either Rule 13F or section 13(f) of the Exchange Act. But the vast majority of these have done so in the context of explaining research methodology (that is, they rely on the disclosures produced under the program to test some other hypothesis) or discussing some non-governance topic. Of the few pieces that do examine 13F in the context of corporate governance, none attempt to look at multiple impacts of the regime in this domain (much less attempt a global analysis), and all mention it only in a very cursory manner—in one paragraph or less. Several papers from the last two decades mention 13F in explicating the disclosure obligations of hedge fund activists. See Marcel Kahan & Edward B. Rock, Hedge Funds in Corporate Governance and Corporate Control, 155 U. PA. L. REV. 1021, 1063 (2007) (single paragraph); Joel Slawotsky, Hedge Fund Activism in an Age of Global Collaboration and Financial Innovation: The Need for a Regulatory Update of United States Disclosure Rules, 35 REV. BANKING & FIN. L. 275, 325 n.257 (2015) (single footnote); David William Roberts, Note, Agreement in Principle: A footnote continued on next page Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1412 generally include “equity securities that are traded on an exchange or quoted on [NASDAQ], equity options and warrants, shares of closed-end investment companies, and some convertible debt securities.”101 The list includes securities issued by foreign companies if those shares are traded on a U.S. exchange or quoted on NASDAQ.102 It does not include shares in mutual funds, short sales, or most other derivatives.103 Within forty-five days after the end of each quarter, all institutions that meet this threshold must submit a report to the SEC on Form 13F104 that lists, for each covered security, the number of shares held on the last date of the quarter and the market value of those shares.105 These filings are made available to the public via EDGAR.106 Under certain circumstances, however, the SEC will grant institutional requests to keep 13F filings out of the public domain—either temporarily or permanently.107 The SEC also has the power to exempt any institution or class of institutions from filing forms altogether.108 2. How 13F data is used Modern data-processing capabilities make it possible for 13F data to be quickly digested and easily combined with other information.109 Various intermediaries process 13F filings and repackage them to suit the needs of investors, managers, researchers, and others.110 With a few clicks, these intermediaries can produce highly actionable information. For instance, a manager can use 13F data to determine which firm shareholders have consistently held significant stakes over the last one, three, five, or ten years. An activist contemplating a proxy fight (or a firm targeted by such an effort) can use 13F data to see which current firm shareholders have a track record of 101. OFF. OF AUDITS, SEC, REPORT NO. 480, REVIEW OF THE SEC’S SECTION 13(F) REPORTING REQUIREMENTS, at v (2010) [hereinafter OIG REPORT], https://perma.cc/M8SG-22CU. 102. SEC 13F Questions, supra note 92. 103. OIG REPORT, supra note 101, at 25-26. 104. Form 13F, supra note 90, at 1. 105. Id. at 5; see also Exchange Act § 13(f), 15 U.S.C. § 78m(f)(1). 106. See Exchange Act § 13(f), 15 U.S.C. § 78m(f)(4); Rulemaking for EDGAR System, 64 Fed. Reg. 2843 (Jan. 19, 1999) (codified at 17 C.F.R. pts. 232, 240, 249). 107. Exchange Act § 13(f), 15 U.S.C. § 78m(f)(4); SEC 13F Questions, supra note 92. 108. Exchange Act § 13(f), 15 U.S.C. § 78m(f)(3). 109. Cf. Tom C.W. Lin, Reasonable Investor(s), 95 B.U. L. REV. 461, 487-95 (2015) (reviewing the technological transformation of securities markets). 110. Edward Pekarek, Hogging the Hedge? “Bulldog’s” 13F Theory May Not Be So Lucky, 12 FORDHAM J. CORP. & FIN. L. 1079, 1104 (2007) (describing the “cottage industry” of informational intermediaries). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1413 supporting (or opposing) activists in prior campaigns.111 An investor contemplating sponsoring a shareholder proposal may do the same.112 A lawyer considering a securities class action may use 13F data to determine which investors bought or sold securities while the fraud was “on the market.”113 And firm managers thinking of taking an action on an ESG topic may use 13F data to determine what proportion of its current shareholders have publicly declared positions on that topic.114 3. The lack of any substitute source for 13F data There is no real substitute for 13F data.115 While various provisions of state and federal law require corporations to compile a list of their 111. See infra Part II.A.1. Some institutional investors are required to disclose their proxy- voting records. See 17 C.F.R. § 270.30b1-4 (2021) (“Every registered management investment company [mutual fund] . . . shall file an annual report . . . containing the registrant’s proxy voting record . . . .”). Some others do so even absent federal mandates. E.g., Proxy Voting, CALPERS, https://perma.cc/NK2U-JAY8 (last updated May 2, 2022) (“We . . . publicly post our votes in advance of each company’s annual general meeting.”). 112. See infra Part II.B.1. 113. See infra Parts II.C.1, .4. 114. See infra Part II.E.1. 115. See Daniel Collins, WhaleWisdom, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 3 (Sept. 29, 2020) [hereinafter WhaleWisdom Comment], https://perma.cc/8EFX-S8J9 (“Form 13F reports cannot be replaced by alternate means.”); James G. Martin, Soc’y for Corp. Governance, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 8 (Sept. 29, 2020) [hereinafter Soc’y for Corp. Governance Comment], https://perma.cc/9ZA2-FFYZ (noting that “all stock surveillance programs rely on the disclosures provided on Form 13F to form the initial basis of their analysis”); Tawny A. Bridgeford, Nat’l Mining Ass’n, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 2 (Sept. 29, 2020) [hereinafter NMA Comment], https://perma.cc/Y8X8-467C (“The information found in 13F reports cannot simply be replaced by hiring stock surveillance firms as even these companies rely on the quarterly 13F data in their research efforts.”); Andrew R. Brownstein, David A. Katz & Oluwatomi O. Williams, Wachtell, Lipton, Rosen & Katz, Proposed Rules Relating to the Reporting Threshold for Institutional Investment Managers, HARV. L. SCH. F. ON CORP. GOVERNANCE (Oct. 6, 2020), https://perma.cc/2Q3F-SGRL (disputing the view that “market surveillance firms could replicate Form 13F information” because “Form 13F filings are themselves the most reliable (if sometimes outdated) information market surveillance firms have available to them”); Wachtell, Lipton, Rosen & Katz, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 10 (Sept. 29, 2020) [hereinafter Wachtell Comment], https://perma.cc/YQ7W-8YR5 (similar); cf. Stephen Taub, The SEC Is Proposing a Big Change. These Firms Are Not Happy About It., INSTITUTIONAL INV. (July 13, 2020), https://perma.cc/BFS3-EWNW (noting the many market-surveillance and research firms opposed to a rule that would raise the threshold for 13F disclosures). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1414 stockholders before annual meetings and other voting events,116 this list is severely limited because the large majority of shares are held for the benefit of investors in “street name” by brokers.117 Under SEC rules, brokers may not identify these shareholders to corporations if they object to such identification118—which the overwhelming majority of them do.119 As the SEC explained in an earlier 13F rulemaking, issuers find 13F “useful because much of their shareholder list may reflect holdings in ‘street name’ rather than beneficial ownership.”120 Other disclosure regimes also fall short. Certain private pension funds are required to disclose their holdings—but only annually.121 Public pension funds generally have no such obligations.122 The blockholder disclosures required under sections 13(d) and (g) of the Exchange Act only apply to the small subset of investors who acquire 5% of a company.123 The only disclosure regime that rivals 13F in scope and utility is the one applicable to mutual funds. These funds are required to submit a report to the SEC on Form N-PORT each month listing their “portfolio holdings.”124 Only 116. E.g., DEL. CODE ANN. tit. 8, § 219 (2022); 17 C.F.R. § 240.14a-7 (2021). 117. See ALAN L. BELLER & JANET L. FISHER, THE OBO/NOBO DISTINCTION IN BENEFICIAL OWNERSHIP: IMPLICATIONS FOR SHAREOWNER COMMUNICATIONS AND VOTING 5 (2010), https://perma.cc/XA36-9SBK; Marcel Kahan & Edward Rock, The Hanging Chads of Corporate Voting, 96 GEO. L.J. 1227, 1236-42 (2008). The Depository Trust Company (through the Depository Trust and Clearing Corporation, or CEDE), in turn, holds the securities for the benefit of these brokers. However, CEDE makes available a list of brokers holding the stock in CEDE’s name. See 17 C.F.R. § 240.14a-13(a) note 1 (2021); see also Jessica Erickson, Automating Securities Class Action Settlements, 72 VAND. L. REV. 1817, 1834 (2019) (explaining this system). 118. 17 C.F.R. § 240.14b-1(b)(3)(i) (2021). 119. BELLER & FISHER, supra note 117, at 5 (“Over 75 percent of customers holding shares in street name are [Objecting Beneficial Owners, or OBOs], and 52-60 percent of the shares of publicly-held companies in the United States are therefore held by OBOs.”). 120. Rulemaking for EDGAR System, 64 Fed. Reg. 2843, 2852-53 (Jan. 19, 1999) (codified at 17 C.F.R. pts. 232, 240, 249). 121. 29 U.S.C. § 1023(b)(3)(C); 29 C.F.R. §§ 2520.103-10 to -11 (2022); see also 1 RONALD J. COOKE, ERISA PRACTICE AND PROCEDURE § 3:31 (West 2021). 122. See David H. Webber, The Use and Abuse of Labor’s Capital, 89 N.Y.U. L. REV. 2106, 2112 n.26 (2014) (“[I]t is nearly impossible for the public to ascertain the content of public pension fund portfolios.”). Some of the largest funds do provide holdings disclosures on an annual or quarterly basis. See, e.g., STATE OF WIS. INV. BD., SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2019 (2019), https://perma.cc/HCC6-UBTA; N.Y. STATE & LOC. RET. SYS., OFF. OF THE N.Y. STATE COMPTROLLER, NEW YORK STATE COMMON RETIREMENT FUND ASSET LISTING AS OF MARCH 31, 2020 (2020), https://perma.cc/ QG8A-BPFE; N.Y. STATE TCHRS.’ RET. SYS., DOMESTIC EQUITY HOLDINGS AS OF MARCH 31, 2022 (2022), https://perma.cc/VP6H-V8WR. 123. Exchange Act § 13(d), (g), 15 U.S.C. § 78m(d), (g). 124. 17 C.F.R. § 270.30b1-9 (2021); Investment Company Reporting Modernization, 81 Fed. Reg. 81,870, 81,872-73 (2016) (codified in scattered sections of 17 C.F.R.). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1417 C. Efforts to Reform 13F After years of obscurity, 13F is suddenly making headlines.134 In the final months of the Trump Administration, the SEC proposed dramatically curtailing the program.135 Now there is a concerted push in the opposite direction.136 All of these proposals share a common trait: They fail to consider 13F’s impacts on corporate governance.137 1. The SEC’s proposal (2020) In July 2020, the SEC proposed reducing by about 90% the number of institutions required to make 13F disclosures.138 As discussed above, the current rule applies to institutions managing $100 million or more. The SEC’s proposal would have raised this reporting threshold to $3.5 billion.139 The SEC’s proposal all but ignored corporate governance.140 Instead, the Commission justified the proposal by emphasizing the major market changes had failed to even delegate authority to a particular division or office “to review and analyze the 13F reports,” which meant that “no division or office considers this task as falling under its official responsibility.” OIG REPORT, supra note 101, at vi. 134. E.g., Corrie Driebusch & Juliet Chung, SEC Rule Proposal Would Slash Number of Investment Managers That Need to Report Quarterly Holdings, WALL ST. J. (July 10, 2020, 9:04 PM ET), https://perma.cc/QGD6-S46D (to locate, select “View the live page”); Ortenca Aliaj, SEC Disclosure Change Would Allow Activist Investors to “Go Dark,” Lawyers Warn, FIN. TIMES (July 22, 2020), https://perma.cc/H2ZQ-DQDS (to locate, select “View the live page”). 135. Infra Part I.C.1. 136. Infra Parts I.C.2-.3. 137. Proposals to expand the substantive scope of 13F to require disclosure of derivatives and short positions are beyond the scope of this Article. 138. Reporting Threshold for Institutional Investment Managers, 85 Fed. Reg. 46,016, 46,022 (July 31, 2020) (to be codified at 17 C.F.R. pts. 240, 249). 139. Id. at 46,020. Some have called for a more modest increase of the reporting threshold. See, e.g., Soc’y for Corp. Governance Comment, supra note 115, at 2 ($450 million); James C. Allen & Stephen Deane, CFA Inst., Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 5 (Sept. 29, 2020) [hereinafter CFA Inst. Comment], https://perma.cc/XY6V-55LD ($330 million); Aron Szapiro, Barbara Noverini & Sagar Patel, Morningstar, Inc., Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 2 (Sept. 29, 2020) [hereinafter Morningstar Comment], https://perma.cc/ALU6-3GV3 ($300 million); OIG REPORT, supra note 101, at 26-27 (referring to the possibility of raising the threshold to $300 million). In 1981, the White House apparently considered a legislative amendment to section 13(f) that would have raised the reporting threshold to $1 billion. Letter from Edward H. Auchincloss, President, Auchincloss & Lawrence Inc., to C. Boyden Gray, Couns. to the Vice President 1-2 (July 23, 1981), https://perma.cc/4ZMT-4EB8. 140. Cf. Reporting Threshold for Institutional Investment Managers, 85 Fed. Reg. at 46,023 (acknowledging that “Form 13F currently is used for a wide variety of purposes” and footnote continued on next page Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1418 since the $100 million threshold was set in 1975141 and the compliance burden associated with producing the reports.142 According to a March 2021 regulatory filing, the SEC is “considering recommendations for next steps” on the proposal, “including whether to recommend targeted amendments to Form 13F and targeted exemptions from the filing requirements where duplicative filings exist.”143 In November 2021, the SEC confirmed that it was “not re-proposing the amendments to raise the reporting thresholds.”144 2. The NYSE’s rulemaking petition (2013) In 2013, a group led by the New York Stock Exchange (NYSE) petitioned the SEC to shorten the 13F reporting window from forty-five days at the end of the quarter to two business days.145 This proposal has been revived in the wake of the SEC’s 2020 proposal, with many influential interest groups expressing support.146 As with the SEC’s 2020 proposal, the primary justification offered for shortening the reporting window is background changes in the underlying “the pool of users of the data has expanded to include academics, market researchers, the media, attorneys pursuing private securities class-action matters, and market participants (including institutional investors themselves) who use the data to enhance their ability to compete”); id. (“We recognize that raising the Form 13F reporting threshold would decrease holdings data available to . . . corporate issuers, market participants, and other analysts and researchers . . . .”). 141. Id. at 46,018-20 (explaining that the proposal was “based on the growth of the U.S. equities market that occurred between the adoption of section 13(f) in 1975 and December 2018, and it is designed to reflect proportionally the same market value of U.S. equities that $100 million represented in 1975”). 142. Id. at 46,022 (estimating annual compliance-cost savings of the proposal at between $15,000 and $30,000 per manager). 143. Regulatory Flexibility Agenda, 86 Fed. Reg. 17,040, 17,046 (Mar. 31, 2021) (listing “Amendments to Form 13F Filer Threshold” as an agenda item for the SEC). 144. Electronic Submission of Applications for Orders Under the Advisers Act and the Investment Company Act, Confidential Treatment Requests for Filings on Form 13F, and Form ADV-NR; Amendments to Form 13F, 86 Fed. Reg. 64,839, 64,841 (Nov. 19, 2021) (to be codified in scattered sections of 17 C.F.R.). 145. Janet McGinness, Kenneth A. Bertsch & Jeffrey D. Morgan, NYSE Euronext, Soc’y of Corp. Secy’s & Governance Pros. & Nat’l Inv. Rels. Inst., Comment Letter on Petition for Rulemaking Under Section 13(f) of the Securities Exchange Act of 1934, at 9 (Feb. 1, 2013), https://perma.cc/5APL-BWXA [hereinafter NYSE Petition]. 146. See, e.g., Wachtell Comment, supra note 115, at 14; Soc’y for Corp. Governance Comment, supra note 115, at 17; Nat’l Inv. Rels. Inst. et al., Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 1 (Aug. 28, 2020) [hereinafter NIRI Comment], https://perma.cc/YT7E-VWWR; Michelle Leder, Opinion, Hedge Funds Need to Come Out of the Shadows, BLOOMBERG (Jan. 6, 2021), https://perma.cc/ULH7-EQJK. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1419 market context, specifically, the “massive technological advances in recordkeeping and reporting systems” since the 1970s.147 Generally, the petition ignores the corporate-governance implications of 13F information. The sole exception is a reference of how the current, forty- five-day delay between the end of the quarter and the disclosure “hampers public companies’ ability to identify and engage with their shareholders, including their ability to consult with shareholders regarding ‘say on pay,’ proxy access and other key corporate-governance issues.”148 But the petition does not explain why public-company managers need to identify and engage with the subset of shareholders who acquired shares only in the most recent period on these ballot items, as opposed to the many longer-term investors who have presumably been reporting their share ownership over many periods. More broadly, the petition entirely fails to consider the possibility that, even if there was some advantage to corporate managers being able to identify and engage with these shareholders more quickly, this may not be in the best interest of shareholders or other corporate stakeholders. Although this 2013 petition did not immediately lead to regulatory action, the petition has been revitalized by the SEC’s 2020 proposal. Many of the commentators who vigorously objected to the SEC’s efforts to scale back 13F specifically cited the 2013 petition as the kind of change the Agency ought to consider.149 147. NYSE Petition, supra note 145, at 2. 148. Id. at 3. 149. E.g., NIRI Comment, supra note 146, at 1; Tyler Gellasch, Healthy Mkts., Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 4 (Aug. 28, 2020) [hereinafter Healthy Mkts. Comment], https://perma.cc/ 3DUX-6ZU8; Barbara L. Becker, N.Y.C. Bar Comm. on Mergers, Acquisitions & Corp. Control Contests, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 4 (Aug. 31, 2020), https://perma.cc/5VW3- GUN6; Barbara Roper, Consumer Fed’n of Am., Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 12-13 (Sept. 16, 2020) [hereinafter Consumer Fed’n Comment], https://perma.cc/5VPD- WXXM; Chris T. Taylor & Hope M. Jarkowski, NYSE et al., Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 5 (Sept. 21, 2020) [hereinafter NYSE Comment], https://perma.cc/2XJE-LX6J; Christopher A. Iacovella, Am. Sec. Ass’n, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 3 (Sept. 29, 2020), https://perma.cc/BCH8-LCFX; Morningstar Comment, supra note 139, at 2; Wachtell Comment, supra note 115, at 13; Soc’y for Corp. Governance Comment, supra note 115, at 17; James J. Angel, Georgetown Univ., Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 8 (Sept. 29, 2020), https://perma.cc/WZ7Z-7NLS. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1422 considerations,” but that “substantial advances in information technology in the 34-year interim” had rendered these concerns “no longer relevant.”159 This is incorrect. Congress was not single-mindedly seeking to maximize the volume of information, but was rather cognizant of the broad range of possible costs and benefits such disclosure might impose, including in the domain of corporate governance. For one thing, the statute includes a mix of transparency-enhancing160 and transparency-reducing161 components, indicating that Congress was not just pursuing maximal information disclosure, but was instead carefully balancing an interest in enhancing transparency against other competing considerations. The legislative history confirms that Congress was well aware of the important potential impacts on corporate governance. The single most 159. NYSE Petition, supra note 145, at 5; see also Deborah K. Pawlowski, Nat’l Invs. Rel. Inst. Virtual Chapter, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 2 (Sept. 1, 2020), https://perma.cc/9CD3-KDZD (“[W]e suggest the SEC recognize the advances in technology since 1978 and promote more timely and complete disclosure by supporting more frequent reporting, requiring the public disclosure of short positions, and cutting the 45-day reporting period.”); Howard Ungerleider, Dow Inc., Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 4 (Sept. 11, 2020), https://perma.cc/7GS7-MF38 (“While Dow recognizes that the current 45-day reporting period for Form 13F was borne of practical considerations for the time required for data collection and submission, we believe these considerations are now less relevant as advances in information technology have significantly expedited these processes.”); Mark R. George, Norfolk S. Corp., Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 2 (Sept. 22, 2020), https://perma.cc/235Z-D8SF (“[W]e urge the Commission to consider reducing the time period for reporting to adjust for recordkeeping advances . . . .”). 160. See Exchange Act § 13(f), 15 U.S.C. § 78m(f)(6)(A) (defining covered “institutional investment manager” very broadly); id. § 3, 15 U.S.C. § 78c(a)(11) (defining covered “equity securit[ies]” very broadly); id. § 13(f), 15 U.S.C. § 78m(f)(1) (setting the reporting threshold at “$100,000,000 or such lesser amount” as the Commission may choose, allowing the SEC to lower the threshold but not raise it); id. (providing that an institutional investment manager triggers the reporting obligation if it meets the reporting threshold on the last trading day “in any of the preceding twelve months” (emphasis added)); id. (setting one year as the floor for the frequency of reporting); id. (requiring a long list of information that must be included in reports). 161. Id. § 13(f), 15 U.S.C. § 78m(f)(3), (5) (giving the SEC broad authority to “exempt, conditionally or unconditionally, any institutional investment manager or security or any class of institutional investment managers or securities from any or all of the provisions of this subsection or the rules thereunder” where doing so is “consistent with the protection of investors and the purposes of this subsection”); id., 15 U.S.C. § 78m(f)(4) (giving the SEC authority to “delay or prevent public disclosure of any such information in accordance with [the Freedom of Information Act]”); id. § 13(d), (f), 15 U.S.C. § 78m(d)(1), (d)(5), (f)(1) (excluding major categories of securities from coverage, including nonconvertible debt securities); id. § 13(f), 15 U.S.C. § 78m(f)(1) (prohibiting the Agency from lowering the reporting threshold below $10 million); id. (prohibiting the Agency from making disclosures more frequent than quarterly). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1423 important event leading to Congress’s 1975 adoption of section 13(f) was a study of institutional investors completed by the SEC in 1971 at Congress’s direction.162 The study devotes an entire chapter (over 300 pages) to “institutional relationships with portfolio companies.”163 The chapter begins by explaining that the growth of institutions poses a “formidable potential counter-force to corporate managerial hegemony,”164 and noting that this development has not yet been adequately reflected in either state or federal law.165 It then dives into a survey of important mechanisms by which these institutions can exert their power, including through voting,166 pushing for “socially responsible” conduct,167 and facilitating takeovers168 or other types of activist-driven changes in corporate control.169 The chapter describes the important role of “passive” institutions that consistently vote with management170 and the concern that institutions will promote stock market short-termism.171 One Commissioner summarized this part of the report as raising “the age-old dispute as between financial and management control of the American industrial system.”172 That these issues were discussed so extensively in a report that all parties agree was the single most important precipitating cause leading to Congress’s adoption of section 13(f) provides strong evidence that Congress appreciated 162. See S. REP. NO. 94-75, at 78-79 (1975); Filing and Reporting Requirements Relating to Institutional Investment Managers, 43 Fed. Reg. 26,700, 26,701 (June 22, 1978) (codified at 17 C.F.R. pts. 240, 249); Reporting Threshold for Institutional Investment Managers, 85 Fed. Reg. 46,016, 46,018 (July 31, 2020) (to be codified at 17 C.F.R. pts. 240, 249); Senators Sherrod Brown, Tammy Baldwin, Jack Reed & Chris Van Hollen, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 1-2 (Oct. 21, 2020), https://perma.cc/797Q-PDM7; Soc’y for Corp. Governance Comment, supra note 115, at 3. 163. SEC, INSTITUTIONAL INVESTOR STUDY REPORT, H.R. DOC. NO. 92-64, at 2529-849 (1971) (capitalization altered). 164. Id. at 2530. 165. Id. at 2549. 166. Id. at 2750. 167. Id. at 2761. 168. Id. at 2762. 169. Id. at 2826. 170. Id. at 2751. 171. Id. at 2772. 172. Richard B. Smith, Comm’r, SEC, Remarks on “The Institutional Investor Study” Before the Exchequer Club, Sheraton Carlton Hotel, Washington, D.C. 6 (Jan. 15, 1969), https://perma.cc/NUG7-3FZA. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1424 the potential for this program to have impacts on the relationship between institutions and the companies they own.173 In any case, Congress removed any doubt in 1996 when it mandated that the SEC consider the impact of “efficiency, competition, and capital formation” whenever making rules under the Exchange Act.174 At least one court has construed this language as encompassing cost–benefit analysis including corporate-governance dynamics.175 * * * A complete understanding of the corporate-governance implications of 13F is sorely needed. The information produced under that provision appears to have an enormous range of potential effects on how corporate managers and institutional investors interact with one another. Yet these effects have been overlooked by scholars, leaving policymakers without a sound basis for reasoned action. There is an urgent need for analyzing the impacts of 13F, as the SEC and Congress face mounting calls to revisit this regime. The next Part turns to answer this call. II. 13F’s Impacts on Corporate Governance By enabling managers, shareholders, and other market actors to identify a firm’s shareholders, 13F facilitates a host of important corporate-governance interactions and functions. This Part analyzes 13F’s impact across five governance domains: (1) hedge fund activism; (2) shareholder proposals; 173. Two other studies also influenced Congress’s decision to adopt section 13(f): a 1973 report from President Nixon’s Commission on Financial Structure and Regulation and a 1973 report on the role of institutional investors in the stock market prepared by the staff of the Senate Committee on Finance. Filing and Reporting Requirements Relating to Institutional Investment Managers, 43 Fed. Reg. 26,700, 26,701 (June 22, 1978) (codified at 17 C.F.R. pts. 240, 249). Both reports emphasized corporate-governance issues. PRESIDENT’S COMM’N ON FIN. STRUCTURE & REGUL.,THE REPORT OF THE PRESIDENT’S COMMISSION ON FINANCIAL STRUCTURE AND REGULATION 105 (1971) (noting that institutional investors with a “sizable amount of a corporation’s equity securities” could “have a significant influence on the management of that enterprise” by voting those shares, and that this justifies disclosure); STAFF OF S. COMM. ON FIN., 93D CONG., THE ROLE OF INSTITUTIONAL INVESTORS IN THE STOCK MARKET app. A at 23 (Comm. Print 1973) (excerpting an article warning about the “complete dominance of . . . our corporations by a relatively small handful of institutions” (quoting Securities Industry Association chairman and Goldman Sachs partner John C. Whitehead)). 174. National Securities Markets Improvement Act of 1996, Pub. L. No. 104-290, § 106(b), 110 Stat. 3416, 3424-25 (codified as amended at 15 U.S.C. § 78c). 175. Bus. Roundtable v. SEC, 647 F.3d 1144, 1155 (D.C. Cir. 2011). But see John Coates IV, Cost–Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 YALE L.J. 882, 887, 1011 (2015) (arguing that “precise, reliable, quantified” cost–benefit analysis is “unfeasible” for much financial regulation and criticizing the use of cost–benefit analysis as a framework for judicial review of agency action). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1427 Channel Description of 13F’s Impact Significant? Normative Upshot Shareholder Proposals 7. Enables proposal targeting by sponsors Maybe Uncertain 8. Enables efficient targeting of proposals for exclusion by managers Maybe Uncertain 9. Helps management “always win the close ones,” snatching victories away from proposal sponsors in closely contested votes Yes Harmful 10. Helps shareholder voters overcome incentives to remain passive and deferential to management Maybe Uncertain 11. Facilitates settlement by reducing informational asymmetries regarding prospects of success Maybe Uncertain Shareholder Litigation 12. Helps plaintiffs’ attorneys and/or courts identify suitable lead plaintiffs Weak N/A 13. Helps parties litigate and courts resolve motions for class certification Weak N/A 14. Helps identify eligible claimants for settlements Maybe N/A 15. Facilitates settlement by reducing informational asymmetries on damages Maybe Beneficial Engagement 16. Promotes manager-initiated engagement Yes Uncertain 17. Promotes shareholder- initiated engagement No N/A 18. Promotes “coordinated engagements” by multiple shareholders on ESG topics with the same company Maybe Uncertain Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1428 Channel Description of 13F’s Impact Significant? Normative Upshot Tacit Shareholder Influence 19. Amplifies the effect of investor policy statements in guidelines, stewardship codes, and other documents Yes Uncertain 20. Facilitates the anticompetitive effects of common ownership Yes Harmful Evidence regarding the significance of 13F’s effects is limited by the blind spot that scholars have had for 13F—taking the provision for granted without critically evaluating it or directly controlling for it in empirical studies. Although no prior study actually tests the impact of 13F, many studies rely heavily on 13F data and therefore can support inferences regarding the effect that 13F is likely having in a given domain. This Article also draws on other sources of evidence to evaluate 13F’s impact, including comment letters filed by various corporate-governance actors in reaction to the SEC’s 2020 proposal. While these comment letters cannot always be taken at face value, they provide some indication of how market players are using 13F data. But this evidence still only gets us so far. As Table 1 shows, there are quite a few areas where the combination of theory and empirical and anecdotal data is just not sufficient to draw any conclusion as to whether the effect is significant. These are areas where additional research may be especially valuable. As to assessing the normative upshot of each effect, this Article takes a minimalist and conservative approach. The primary goal of this Part is to map the effects of 13F across the corporate-governance universe, not to wade into (much less resolve) foundational debates about the purposes of corporate law or whether enhanced or reduced shareholder power in a given domain is likely to be beneficial. In each case, I provide a brief, balanced assessment of the current state of theoretical and empirical research—assessing impacts on shareholders and other stakeholders.177 Since many of these debates are ongoing, the most frequent answer in this column is “uncertain.” Readers, of course, are free to draw their own conclusions. This conservative approach makes the few areas where I do reach a conclusion on the normative effect all the more notable. 177. See, e.g., infra Part II.A.1 (reviewing the debate over hedge fund activism); infra Part II.A.6 (reviewing the debate over hedge fund–activist settlements); infra Part II.B.1 (reviewing the debate over shareholder proposals); infra Part II.B.4 (reviewing the debate over shareholder-proposal settlements); infra Part II.C.4 (reviewing the debate over securities class actions); infra Part II.D.1 (reviewing the debate over engagement); infra Part II.D.3 (same). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1429 A. Hedge Fund Activism “Hedge fund activists” seek to make returns by buying up a substantial portion (usually less than 10%)178 of a public company’s stock and then trying to get the company to change its business plan, leadership, governance system, or corporate structure in some way.179 To impose these changes, activists can threaten or pursue a “proxy fight,” putting forward a rival set of directors to run against the incumbent group and seeking the support of enough fellow shareholders to win.180 Targets may also enter into “settlement” agreements with activists, making concessions in exchange for the activists’ agreement to not pursue a proxy fight.181 Hedge fund activists can be usefully contrasted with non-activist hedge funds, which seek to make returns through various trading strategies but do not attempt to influence the companies they invest in,182 and with private equity firms, which seek to profit by changing a company’s business plan or structure (but only after acquiring a controlling share and taking the company private).183 These activists have become important players in the U.S. corporate landscape.184 Between 2015 and 2019, an average of 272 (public) activist campaigns were pursued against U.S. issuers every year.185 178. Gilson & Gordon, supra note 48, at 899 (collecting sources). 179. For overviews, see Bebchuk, The Myth, supra note 58; John C. Coffee, Jr. & Darius Palia, The Wolf at the Door: The Impact of Hedge Fund Activism on Corporate Governance, 41 J. CORP. L. 545 (2016); and Leo E. Strine, Jr., Who Bleeds When the Wolves Bite?: A Flesh-and- Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System, 126 YALE L.J. 1870, 1885-87 (2017). 180. William W. Bratton, Hedge Funds and Governance Targets, 95 GEO. L.J. 1375, 1402-05 (2007); Paul H. Edelman, Randall S. Thomas & Robert B. Thompson, Shareholder Voting in an Age of Intermediary Capitalism, 87 S. CAL. L. REV. 1359, 1411 (2014). 181. Bebchuk et al., supra note 22, at 2; Coffee et al., supra note 22, at 395-400. 182. Bratton, supra note 180, at 1383. 183. Id. 184. Zohar Goshen & Sharon Hannes, The Death of Corporate Law, 94 N.Y.U. L. REV. 263, 283 (2019); Kobi Kastiel, Against All Odds: Hedge Fund Activism in Controlled Companies, 2016 COLUM. BUS. L. REV. 60, 64; Marcel Kahan & Edward Rock, Anti-activist Poison Pills, 99 B.U. L. REV. 915, 917 (2019); Assaf Hamdani & Sharon Hannes, The Future of Shareholder Activism, 99 B.U. L. REV. 971, 973 (2019). 185. SULLIVAN & CROMWELL, REVIEW AND ANALYSIS OF 2019 U.S. SHAREHOLDER ACTIVISM 14 (2019), https://perma.cc/8QSN-AKSZ. Nearly one activist campaign was launched against a new target company every day in 2018. Mark R. DesJardine & Rodolphe Durand, Disentangling the Effects of Hedge Fund Activism on Firm Financial and Social Performance, 41 STRATEGIC MGMT. J. 1054, 1055 (2020). In 2017, the Wall Street Journal published an average of over one article per day on the subject. Ed deHaan, David Larcker & Charles McClure, Long-Term Economic Consequences of Hedge Fund Activist Interventions, 24 REV. ACCT. STUD. 536, 537 (2019). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1432 shadow of activism.192 Some empirical studies report that activism produces long-term increases in shareholder value193 and other significant benefits in long-term corporate performance.194 Others, however, have called some of these findings into question195 and report that increases in firm value are produced mainly by transferring wealth from other stakeholders.196 While it is likely that 13F increases the volume of activism, therefore, the normative upshot of this change is more debatable. 2. Activist campaign tailoring 13F not only helps activists select targets; it also leads activists to design their campaigns in a manner that responds to the preferences of the firm shareholders whose votes activists depend on. Scholars have long conjectured that activists’ need to win support from other institutional investors who hold shares of a target firm could mitigate activists’ short-termist incentives and force them to pursue agendas that will 192. Compare, e.g., Bebchuk, The Myth, supra note 58, at 1676-81 (“Without board insulation, the fear of being replaced by shareholders gives insiders incentives to avoid observable departures from shareholder interests.”), with Martin Lipton, Wachtell, Lipton, Rosen & Katz, Empiricism and Experience; Activism and Short-Termism; The Real World of Business, HARV. L. SCH. F. ON CORP. GOVERNANCE (Oct. 28, 2013), https://perma.cc/ 4YEW-3HS6 (“To avoid becoming a target, companies seek to maximize current earnings at the expense of sound balance sheets, capital investment, research and development and job growth.”). 193. Lucian A. Bebchuk, Alon Brav & Wei Jiang, The Long-Term Effects of Hedge Fund Activism, 115 COLUM. L. REV. 1085, 1090-91 (2015); Kedia et al., supra note 21, at 6. 194. Nickolay Gantchev, Merih Sevilir & Anil Shivdasani, Activism and Empire Building, 138 J. FIN. ECON. 526, 527 (2020); Nickolay Gantchev, Oleg R. Gredil & Chotibhak Jotikasthira, Governance Under the Gun: Spillover Effects of Hedge Fund Activism, 23 REV. FIN. 1031, 1033 (2019); Alon Brav, Wei Jiang, Song Ma & Xuan Tian, How Does Hedge Fund Activism Reshape Corporate Innovation?, 130 J. FIN. ECON. 237, 238-39 (2018); Alon Brav, Wei Jiang & Hyunseob Kim, The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes, 28 REV. FIN. STUD. 2723, 2725-26 (2015). 195. Martijn Cremers, Saura Masconale & Simone M. Sepe, Activist Hedge Funds and the Corporation, 94 WASH. U. L. REV. 261, 266-70 (2016); deHaan et al., supra note 185, at 538- 42; James Park, Averages or Anecdotes? Assessing Recent Evidence on Hedge Fund Activism, 62 UCLA L. REV. DISCOURSE 100, 101 (2014). But see Lucian Bebchuk, Alon Brav, Wei Jiang & Thomas Keusch, The Long-Term Effects of Hedge Fund Activism: A Reply to Cremers, Giambona, Sepe, and Wang, HARV. L. SCH. F. ON CORP. GOVERNANCE (Dec. 10, 2015), https://perma.cc/V2S4-82QV (attempting and failing to replicate the results of the Cremers study referenced above). 196. DesJardine & Durand, supra note 185, at 1056; Anup Agrawal & Yuree Lim, Where Do Shareholder Gains in Hedge Fund Activism Come From? Evidence from Employee Pension Plans, 67 J. FIN. & QUANTITATIVE ANALYSIS 2140, 2142 (2022); see also Coffee et al., supra note 22, at 391 (finding that informed trading increases when an activist-nominated director is appointed to a corporate board). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1433 increase the company’s value over the long term.197 As long as activists know they have to win support from longer-term shareholders, they will design campaigns that will appeal to those shareholders and that will include plans designed to enhance the firm’s long-term value. 13F seems to facilitate this interaction. Without the ability to identify existing firm shareholders, activists would be incentivized to look for alternative ways to increase their prospects of success: for instance, by arranging for new shareholders (such as other hedge funds) to take positions in the target at the time of the campaign. Activists who rely on such “wolf packs” have less need to tailor their campaign to win votes from longer-term investors, since they can be more assured of winning sufficient support from their fellow “wolves.” All things equal, activists may have some reasons to limit reliance on wolf packs: There is a legal risk that the activist and other tipped funds would be found to be a “group” for securities-regulation purposes, triggering several adverse legal consequences.198 By allowing activists to identify the target firm’s shareholder base, 13F may incentivize activists to rely more heavily on current longer-term shareholders, resulting in activist campaigns that are designed to promote long-term value. Recent empirical work provides strong support for this conjecture. Simi Kedia and co-authors relied on 13F data to find that long-run (five-year) returns are better for activist campaigns where more “activist-friendly” institutional investors were present at the outset of the intervention.199 Another study similarly found that activist targets with more “long-term investors” experience greater improvements in operating performance over longer periods as compared to other targets.200 This effect seems clearly beneficial for shareholders. A dominant critique of hedge fund activism for 197. Kahan & Rock, supra note 86, at 1089; Rock, supra note 48, at 363, 385; Bebchuk, The Myth, supra note 58, at 1664; Gilson & Gordon, supra note 48, at 897-98; Coffee & Palia, supra note 179, at 572; Edelman et al., supra note 180, at 1420; Robert C. Pozen, The Role of Institutional Investors in Curbing Corporate Short -Termism, FIN. ANALYSTS J., Sept./Oct. 2015, at 10, 10. 198. Yu Ting Forester Wong, Wolves at the Door: A Closer Look at Hedge Fund Activism, 66 MGMT. SCI. 2347, 2347, 2369 n.1 (2019). 199. Kedia et al., supra note 21, at 4, 27. To determine whether an investor was activist friendly, the authors looked at (1) how the investor voted in the target firm and on other activist campaigns; and (2) their investment behavior in other firms targeted by activists. Id. at 10. 200. Aslı Togan Eğrican, Shareholder Coordination, Institutional Investment Horizon, and Hedge Fund Activism, 54 APPLIED ECON. 2390, 2392 (2022); see also Appel et al., supra note 189, at 2724 (finding that among firms targeted by activists, a greater percentage of shares held by passive investors correlated with more activist success in campaigns pursuing changes in corporate control but not more success “for outcomes passive investors often associate with short termism, such as increased payouts and changes to the capital structure”). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1434 over a decade now is that it creates only short-term benefits at the expense of long-term shareholders.201 13F seems to mitigate this negative effect. Moreover, the desire to win votes from these other institutions may lead hedge funds to incorporate various pro-stakeholder reforms as part of their plans to change corporate performance. Some institutional investors have become increasingly interested in these issues,202 and activists seeking to win support from these institutions have an incentive to incorporate these concerns into their campaigns. Newspapers have reported on this trend.203 And a recent empirical study confirmed it systematically: Using 13F data, Manish Jha reported that activists tailor their campaigns to the idiosyncratic preferences of targets’ largest institutional owners.204 That is, where the target’s large shareholders have demonstrated support for shareholder proposals on specific ESG issues, activists are more likely to include language on those particular items in their campaign communications. Jha also found that this strategy pays off—such tailored attacks are more successful in winning support from these institutional investors. Again, this seems beneficial. Another long-standing criticism of hedge fund activism is that any benefit it creates for shareholders comes at the expense of other corporate stakeholders.205 13F also appears to mitigate this negative effect. 3. Competing for shareholder votes in proxy contests 13F enhances the information available to investors ahead of key votes in proxy contests by enabling hedge fund activists and the managers of the firms they target to engage in lobbying to win support for their cause. As Kobi Kastiel and Yaron Nili have explained, proxy campaigns involve a “competition” for shareholder votes in which both activists and target management engage in various lobbying efforts seeking to sway shareholders 201. See supra Part I.A. 202. See generally Condon, supra note 25 (climate); José Azar, Miguel Duro, Igor Kadach & Gaizka Ormazabal, The Big Three and Corporate Carbon Emissions Around the World, 142 J. FIN. ECON. 674 (2021) (climate); Gormley et al., supra note 130 (board gender diversity). 203. Corrie Driebusch, The Next Wave in Shareholder Activism: Socially Responsible Investing, WALL ST. J. (updated Mar. 8, 2020, 9:51 AM ET), https://perma.cc/3NAZ-M4ZL (to locate, select “View the live page”); Amy Whyte, Hedge Fund Activists Pivot to ESG, INSTITUTIONAL INV. (Jan. 23, 2020), https://perma.cc/XMF8-5PYX; Simon Jessop, Exclusive: Activist Investor Ferrari Targets Environment, Social Laggards with New Fund, REUTERS (Nov. 27, 2020, 1:26 AM), https://perma.cc/QM3Z-R5DS; Thomas Franck, Social and Sustainable Investing Gets a Boost from an Unlikely Source: Wall Street Activists, CNBC (updated Apr. 27, 2018, 8:02 AM EDT), https://perma.cc/RF7X-3S8U. 204. Jha, supra note 21, at 3-4, 10-11. 205. See supra Part II.A.1. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1437 rest assured that their (uninformed) votes on the remainder will not have any impact.218 Second, institutions may pass along information to one another about particular votes through formal or informal networks.219 As Luca Enriques and Alessandro Romano explain, institutional investors are not atomistic operators, but rather are “embedded in a network” and are “connected with each other through a complex web of formal, geographical, and co-ownership ties.”220 13F may facilitate the sharing of information across these networks by helping institutions identify one another. Third, 13F may enable institutions to overcome fear of management retaliation. Knowing how the rest of the electorate looks may provide institutions with “safety in numbers.” Institutions may be more inclined to take on risk and vote their true preferences if they know a substantial group of other institutions will be there alongside them in the effort.221 There is no direct empirical evidence on these effects in the context of proxy contests. One study of mutual fund voting on uncontested director elections, however, documented significant “peer effects,” finding that funds are more likely to vote against management where other funds invested in the same company had a demonstrated track record of voting against management.222 It is possible that this effect carries over to proxy fights. To the extent 13F does facilitate more active, less deferential voting in proxy fights by institutional investors, proponents of shareholder power will view this as a positive development. Lucian Bebchuk and co-authors characterize the institutional disincentives to actively engage on matters of corporate governance as an “agency cost” that inhibits more productive involvement.223 Insofar as 13F helps investors overcome these “agency costs” and engage more actively, it may be seen as beneficial. But not everyone sees things this way. The value (for both shareholders and stakeholders) of more active shareholder involvement in corporate governance remains hotly contested,224 as does that of hedge fund activism.225 218. Cf. Kahan & Rock, supra note 56, at 1779 (emphasizing that only a “small number of votes per year . . . are potentially consequential”). 219. Enriques & Romano, supra note 24, at 259-60. 220. Id. at 229. 221. See Matvos & Ostrovsky, supra note 24, at 91 (stating that management’s “ability to punish any individual fund would be diminished if it had to retaliate against a larger number of funds”). 222. Id. 223. Lucian A. Bebchuk, Alma Cohen & Scott Hirst, The Agency Problems of Institutional Investors, J. ECON. PERSPS., Summer 2017, at 89, 95-104. 224. See supra Part I.A. 225. See supra Part II.A.1. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1438 For skeptics of shareholder primacy, enabling more active and impactful institutional-investor voting on proxy fights may well do more harm than good. These critics may prefer a universe in which institutions play a more passive and deferential role in governance. Accordingly, the normative upshot of this development seems to depend on one’s views of shareholder power. 5. Activist detection and defense A particularly influential argument in the debate following the SEC’s 2020 proposal was that 13F allows corporate managers and other investors to detect hedge fund activism. Many of those who challenged the SEC’s proposal argued that it would enable activists to “go dark,” build up positions in companies in secret, and then “ambush” unsuspecting managers.226 To the extent 13F lets managers spot activists earlier, this may allow firms to implement a range of defenses, including low-threshold poison pills227 and 226. Adam O. Emmerich, David M. Silk & Sabastian V. Niles, Wachtell, Lipton, Rosen & Katz, Going Dark: SEC Proposes Amendments to Form 13F, HARV. L. SCH. F. ON CORP. GOVERNANCE (July 19, 2020), https://perma.cc/QBK3-AF4T; see Eduardo Gallardo, Why the SEC’s Proposal to Amend Rule 13f-1 Should Fail, COLUM. L. SCH.: CLS BLUE SKY BLOG (July 27, 2020), https://perma.cc/C357-X2P9; David Bell & Julia Forbess, Fenwick & West LLP, Proposed Form 13F Changes Would Reduce Visibility into Stockholder Base and Activist Activities, JD SUPRA (Aug. 19, 2020), https://perma.cc/7E2U-KTA4; Aliaj, supra note 134; Driebusch & Chung, supra note 134; Miles Weiss, Benjamin Bain & Hema Parmar, Tepper, Einhorn, Soros Stock Holdings Would Go Dark in SEC Plan, BLOOMBERG (updated July 14, 2020, 3:01 PM EDT), https://perma.cc/Z7ES-SP73 (to locate, select “View the live page”); Maria Ghazal, Bus. Roundtable, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 3 (Sept. 29, 2020) [hereinafter Bus. Roundtable Comment], https://perma.cc/X4JA-BSUX; NAM Comment, supra note 208, at 4-5; Tom Quaadman, Ctr. for Cap. Mkts. Competitiveness, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 3 (Sept. 29, 2020) [hereinafter Ctr. for Cap. Mkts. Comment], https://perma.cc/WHL9-CKTB; Soc’y for Corp. Governance Comment, supra note 115, at 10-11; NIRI Comment, supra note 146, at 2-3; Marcie Frost, CalPERS, Comment Letter on Proposed Amendment to Reporting Threshold for Institutional Investment Managers 4-5 (Sept. 28, 2020) [hereinafter CalPERS Comment], https://perma.cc/XUN3-42QL; Nasdaq Comment, supra note 208, at 5; NYSE Comment, supra note 149, at 4; Healthy Mkts. Comment, supra note 149, at 9-11; Consumer Fed’n Comment, supra note 149, at 7-8. 227. See Third Point LLC v. Ruprecht, Nos. 9469, 9497 & 9508, 2014 WL 1922029, at *3, *10 (Del. Ch. May 2, 2014); Kahan & Rock, supra note 184, at 953-54; Bernard S. Sharfman, The Tension Between Hedge Fund Activism and Corporate Law, 12 J.L. ECON. & POL’Y 251, 273 (2016); Bebchuk & Jackson, supra note 75, at 56 n.57. A “poison pill”—also referred to as a “shareholder-rights plan”—is a commonly used defensive tactic for firms seeking to deter hostile takeovers or activist attacks. It works by authorizing other shareholders to purchase new shares at a discount the moment an insurgent acquires a certain percentage or more of the company’s shares, effectively diluting the voting power and value of the insurgent’s shares. Kahan & Rock, supra note 184, at 921-22, 921 n.18. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1439 other tools.228 The availability of these defenses increases the risk that the activist campaign will fail.229 Accordingly, activists who know that their presence will be prematurely disclosed via 13F may be less likely to pursue a campaign in the first place.230 13F may also decrease activism levels to the extent that it enables other investors to detect activism. Investors who sniff out a potential activist attack might pile into the stock (expecting the activist to pursue a campaign that results in an increase in value), thereby causing the price to increase and making it more costly for the activist to continue to build its position.231 There are reasons, however, to doubt that 13F is such a valuable instrument for detecting activists. In a large subset of activist campaigns, activists establish their positions so quickly that these disclosures do not matter. Rule 13f-1 requires the disclosure of end-of-quarter holdings within forty-five days of the quarter ending. So a fund that begins building a position in a target in early January does not have to make any 13F disclosures until mid-May. Activists often move much faster than this. An early study found that, of the 13Ds filed by activists between 2001 and 2005, fewer than one-third were preceded by a 13F disclosure.232 In addition, activists often announce themselves to the target voluntarily before disclosing their position via 13F or 13D. A recent study found that about a quarter (24%) of all activist campaigns begin with the activist communicating with the target firm prior to making any sort of regulatory filing.233 Take, for example, the case of Exxon and Engine No. 1. Engine No. 1 filed its first 13F form on February 16, 2021,234 forty-five days after the end of the fourth quarter of 2020. But this disclosure did not tip off Exxon to Engine No. 1’s presence, because Engine No. 1 had announced itself to the company 228. Martin Lipton, Wachtell, Lipton, Rosen & Katz, Dealing with Activist Hedge Funds and Other Activist Investors, HARV. L. SCH. F. ON CORP. GOVERNANCE (Jan. 25, 2019), https://perma.cc/XSQ6-J2GT. 229. See Kahan & Rock, supra note 184, at 925. 230. See id. 231. Cf. Bebchuk & Jackson, supra note 75, at 50 (discussing a similar potential effect of the proposal to shorten the 13D disclosure window from ten days to one). 232. Alon Brav, Wei Jiang, Frank Partnoy & Randall Thomas, Hedge Fund Activism, Corporate Governance, and Firm Performance, 63 J. FIN. 1729, 1738, 1758, 1764 (2008). 233. Adam L. Aiken & Choonsik Lee, Let’s Talk Sooner Rather than Later: The Strategic Communication Decisions of Activist Blockholders, J. CORP. FIN., June 2020, at 1, 1-2. 234. See Engine No. 1 LLC, Holdings Report (Form 13F) (Feb. 16, 2021), https://perma.cc/ CG6V-EM4Z. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1442 To the extent that 13F does facilitate activist settlements, the normative upshot of this effect is uncertain. Not only is there an ongoing debate about hedge fund activism,248 but there is also a specific debate about settlements in this domain. Proponents of settlements argue that they allow for the accomplishment of the results of activist campaigns while avoiding unnecessary expenditures associated with proxy fights.249 Critics worry that privately negotiated settlements create asymmetric benefits for activists at the expense of other shareholders.250 The empirical literature is mixed on these questions. In a recent study, Lucian Bebchuk and co-authors painted a uniformly positive picture, finding that (1) settlements are on average accompanied by positive abnormal stock returns; (2) the activist-appointed directors who get board seats through settlements do not subsequently receive less support from other shareholders than other directors; and (3) targets do not provide “greenmail” (that is, asymmetric financial benefits to activists) as part of the settlement.251 By contrast, in another recent study, John Coffee, Jr., and co-authors painted a darker picture, finding that when activist-appointed directors take seats through settlements, there is a corresponding increase in informed trading in the corporation’s stock—suggesting that these directors may be illegally passing along material nonpublic information to their hedge fund sponsors.252 B. Shareholder Proposals Federal securities law requires public companies to give shareholders the chance to vote on certain shareholder-originated proposals.253 Some of the most popular proposal subjects in recent years have been disclosure of corporate climate-impact and sustainability risks; disclosure of corporate political spending; expanded diversity policies at the workplace level; and alteration of the company’s corporate-governance policies (for example, “de- staggering” the board of directors, separating out the CEO and chairman share-class structure, the average market reaction to prior campaigns launched by the activist, the activist’s level of success in prior engagements, and the target firm’s financial performance); Lee Harris, Corporate Elections and Tactical Settlements, 39 J. CORP. L. 221, 221-24 (2014) (controlling for challenger ownership and insider ownership, but not overall institutional ownership). 248. See supra Part II.A.1. 249. Bebchuk et al., supra note 22, at 34. 250. Id. at 3 & n.7. 251. Id. at 3. 252. Coffee et al., supra note 22, at 431. But see id. at 390 (“Inferences of illegality cannot be drawn from our data, standing alone.”). 253. 17 C.F.R. § 240.14a-8 (2021). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1443 positions, and restricting anti-takeover defenses).254 Although technically nonbinding, companies have come under increasing pressure to implement shareholder proposals that win a majority of support.255 13F may be an important tool for shareholder-proposal sponsors, management of the firms targeted by these proposals, and other shareholders in the target firm. This Subpart considers four channels in which 13F may impact shareholder proposals: (1) target selection by proponents and firm managers; (2) the “competition” for votes; (3) enhancing voting by other shareholders; and (4) facilitating settlements between proponents and management. 1. Proposal targeting by sponsors and management One possible way 13F can affect shareholder proposals is by giving proponents and their targets information about the prospects of success of a given proposal in a given firm. Just like an activist hedge fund may use 13F data to ascertain its prospects of success before launching a campaign,256 a would-be proposal sponsor might similarly use 13F (in combination with voting records or other public statements from various institutions257) to gauge the prospects of success before moving forward. On the other hand, some sponsors of certain shareholder proposals may be indifferent to success, and instead may be driven by a more expressive purpose that is served by merely offering the proposal.258 Some evidence confirms that proposal sponsors target their proposals based on the shareholder base of the target firm. One study found that U.S. Fortune 250 firms were more likely to receive a shareholder proposal on environmental issues if they had a higher proportion of institutional owners that had signed onto the U.N.’s Principles for Responsible Investment (PRI).259 Other studies have similarly found a relationship between the general level of institutional ownership and the propensity to be targeted by a shareholder 254. For overviews, see Kastiel & Nili, supra note 70, at 583-84; and Haan, supra note 22, at 272-73. 255. Haan, supra note 22, at 294; Kastiel & Nili, supra note 70, at 586. 256. See supra Part II.A.1. 257. See infra Part II.E.1. 258. Roberto Tallarita, Stockholder Politics, 73 HASTINGS L.J. 1617, 1622-23 (2022) (discussing the “expressive” motives driving stockholder behavior). 259. Erwin Eding & Bert Scholtens, Corporate Social Responsibility and Shareholder Proposals, 24 CORP. SOC. RESP. & ENV’T MGMT. 648, 649 (2017). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1444 proposal, although the studies are mixed regarding the direction of the relationship.260 To the extent 13F does enable sponsors to better target their proposals at firms where they are more likely to win sufficient support, the normative upshot of this effect depends on one’s views regarding shareholder proposals generally. Proponents argue that this mechanism provides an important channel to enhance accountability for managers261 and promote the interests of corporate stakeholders.262 Critics worry that proposals advance narrow particularistic interests263 and impose costly distractions on firm managers.264 Empirical evidence is mixed. Many studies find that shareholder proposals do not produce a significant impact on firm financial or accounting performance.265 When the sample is narrowed to the subset of proposals that result in closely contested votes, however, those that pass with a small margin of votes do result in a positive abnormal return.266 In any case, the studies are limited in scope because they fail to evaluate longer-term returns or stakeholder consequences. A different possible “targeting” effect occurs on the managerial side. Managers often attempt to exclude a shareholder proposal on legal grounds by seeking a “no-action” letter from the SEC.267 13F may help managers anticipate which proposals are likely to obtain necessary shareholder support before they are up for a vote, and thus determine which proposals are worth attempting to exclude. 260. Denes et al., supra note 189, at 414 tbl.3 (noting that four studies found targets had a higher level of institutional ownership, whereas three found a lower level); see also Maxime Couvert, What Are the Shareholder Value Implications of Non-voted Shareholder Proposals? 13, 19 (Swiss Fin. Inst., Rsch. Paper No. 18-79, 2020), https://perma.cc/MEC9- P5V4 (finding that proponents target companies with less institutional ownership). 261. Paul Rose, Shareholder Proposals in the Market for Corporate Influence, 66 FLA. L. REV. 2179, 2185 (2014); Bebchuk, The Case, supra note 58, at 894. 262. Eding & Scholtens, supra note 259, at 650. 263. Haan, supra note 22, at 317 (reaching this conclusion regarding settlements of campaign finance–related shareholder proposals). But see Randall S. Thomas & Kenneth J. Martin, Should Labor Be Allowed to Make Shareholder Proposals?, 73 WASH. L. REV. 41, 72 (1998) (considering and rejecting this argument in the context of proposals sponsored by labor unions). 264. John G. Matsusaka, Oguzhen Ozbas & Irene Yi, Can Shareholder Proposals Hurt Shareholders? Evidence from Securities and Exchange Commission No-Action-Letter Decisions, 64 J.L. & ECON. 107, 135, 138 (2021); Leo E. Strine, Jr., Essay, Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, 114 COLUM. L. REV. 449, 456 (2014). 265. Denes et al., supra note 189, at 408-09. 266. Vicente Cuñat, Mireia Gine & Maria Guadalupe, The Vote Is Cast: The Effect of Corporate Governance on Shareholder Value, 67 J. FIN. 1943, 1945 (2012). 267. Haan, supra note 22, at 273-74 (reviewing this process). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1447 These studies raise the possibility that 13F is facilitating effective managerial lobbying ahead of contested votes on shareholder proposals, allowing managers to snatch victories away from shareholders in some substantial number of cases. Managers have confirmed as much. In its comment letter opposing the SEC’s 2020 proposal to dramatically curtail the scope of 13F filings, the National Association of Manufacturers (a prominent issuer-aligned interest group) explained that 13F is an essential tool that corporate managers rely on as part of their efforts to “[h]elp[] investors . . . understand management’s perspectives” ahead of routine and contentious votes on ballot questions such as shareholder proposals.281 Here, a good case can be made that the effect is harmful for shareholders. 13F is enabling management to leap into action to silence shareholders’ voices precisely in the cases where these voices seem poised to prevail. As discussed above, there is empirical evidence that, within the subset of shareholder proposals that result in closely contested votes, those that pass with a small margin of votes do result in a positive abnormal return.282 It is precisely those cases that management (using 13F) is avoiding by reaching out and snatching away what would otherwise have been narrow shareholder victories. Further, adding insult to injury, 13F supports management using corporate resources to engage in this targeted lobbying—a questionable use of corporate assets.283 It is possible that management’s last-ditch lobbying to defeat these proposals actually benefits shareholders and stakeholders. For instance, some may argue that managers are better able to predict the long-term consequences of a given proposal. Yet there is simply no compelling theoretical or empirical support for that claim in this context. Accordingly, it is reasonable to think that, in this domain, shareholders may be better off with less transparency regarding institutional ownership. 3. Enhancing voting on shareholder proposals As discussed above in the context of proxy votes, 13F may facilitate more active engagement on shareholder proposals by otherwise rationally reticent institutional investors by helping them overcome powerful incentives to remain passive or deferential to management. First, 13F may enable institutions to predict which shareholder proposals are likely to attract a attributing these results in part to management’s “selective campaigning for proposals that are contested”). 281. NAM Comment, supra note 208, at 5. 282. Cuñat et al., supra note 266, at 1954. 283. Cf. Peter Iliev & Svetla Vitanova, The Effect of the Say-on-Pay Vote in the United States, 65 MGMT. SCI. 4505, 4507 (2019) (noting that the act of management “lobbying for support from shareholders . . . might be value destructive on its own”). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1448 substantial amount of investor support, and thus are worth investing time and effort in analyzing. Second, 13F may aid in the sharing of information about shareholder proposals among shareholders considering a vote one way or the other. Third, 13F may provide a “safety in numbers” protection, empowering investors to vote confidently against management, secure in the knowledge that many others will be voting alongside them. There is no empirical evidence directly on point. As discussed above, there is one study finding significant “peer effects” among mutual funds in the context of uncontested director elections.284 It is possible that this effect could carry over into the shareholder- proposal context. To the extent 13F is supporting more active and less deferential voting by institutional investors on shareholder proposals, the normative upshot of this effect is uncertain. Even setting aside the debate surrounding shareholder proposals,285 the notion that removing obstacles to active voting will be beneficial presupposes that shareholders’ underlying interests will produce beneficial results. As discussed above, there is a long-standing debate as to whether this is indeed the case.286 4. Settlement of shareholder proposals Finally, 13F may facilitate settlements between proponents and target- firm management by giving the latter an accurate sense of their prospects of success. Many shareholder proposals are never put to a vote, but rather are voluntarily withdrawn by the proponent in exchange for an agreement by management to accede to some, or all, of the proponent’s demands.287 As in the activism context, managers who expect a shareholder proposal to succeed have strong incentives to negotiate a settlement. For one thing, they may be able to negotiate a collaborative or more favorable arrangement through settlement negotiations than what could occur if the proposal were to win a majority of shareholder votes.288 For another, managers may want to avoid the potential reputational harms associated with losing a shareholder vote.289 13F may inform managers’ assessments of the prospects that any given proposal is likely to succeed, and thus give them reason to come to the table to 284. See supra text accompanying note 222. 285. See supra Part II.B.1. 286. See supra Part I.A. 287. Haan, supra note 22, at 279-84. 288. Id. at 294-96. 289. Id. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1449 reach a settlement.290 Empirical evidence supporting this claim is mixed. One study found that proposals sponsored by institutional investors were more likely to be settled when there was a larger level of institutional ownership of the firm, and that all proposals were more likely to be settled as the share of ownership by certain types of institutional investors increased.291 Another study found that proposals submitted to firms with a lower level of institutional ownership were more likely to be settled.292 And a third found that neither the level of institutional ownership nor the presence of blockholders had any statistical effect on the likelihood of settlement.293 To the extent that 13F is driving settlements of shareholder proposals, the normative upshot turns not only on the contested value of shareholder proposals generally,294 but also on a more specific debate over shareholder- proposal settlements. Proponents of these settlements treat them as a form of “beneficial, informal shareholder activism.”295 Critics, however, worry that settlements negotiated between the proposal sponsor and management without the input or knowledge of other shareholders may create asymmetric benefits for the sponsor at the expense of other shareholders and stakeholders.296 C. Shareholder Litigation Shareholders may pursue several types of legal claims against corporations, including class-action claims alleging secondary-market securities fraud under Exchange Act section 10(b) and Rule 10b-5.297 13F may play a role at various stages of this litigation, including in (1) the selection of 290. Rob Bauer, Frank Moers & Michael Viehs, Who Withdraws Shareholder Proposals and Does It Matter? An Analysis of Sponsor Identity and Pay Practices, 23 CORP. GOVERNANCE 472, 476 (2015) (hypothesizing that settlements are more likely when management “fears the pressure from a larger institutional shareholder base, because these shareholders can threaten to sell off their stakes”). 291. Id. at 480. 292. Couvert, supra note 260, at 31. 293. Maggie Foley, Richard Cebula, Chulhee Jun & Robert Boylan, An Analysis of Withdrawn Shareholder Proposals, 15 CORP. GOVERNANCE 546, 551 (2015). 294. See supra Part II.B.1. 295. See Haan, supra note 22, at 293 (criticizing this view). 296. E.g., id. at 293-300. 297. See generally Amanda Marie Rose, The Shifting Raison D’être of the Rule 10b-5 Private Right of Action, in RESEARCH HANDBOOK ON REPRESENTATIVE SHAREHOLDER LITIGATION 39 (Sean Griffith, Jessica Erickson, David H. Webber & Verity Winship eds., 2018) (providing an overview of securities class-action litigation). My discussion here focuses on the potential impact of 13F on securities class actions under Rule 10b-5, although impacts on other types of shareholder litigation are also possible. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1452 traditionally been regarded as a highly individualized issue, proving reliance would seem to preclude the certification of a class of securities-fraud plaintiffs.307 Under Basic Inc. v. Levinson308 (as ratified by the more recent case Halliburton Co. v. Erica P. John Fund, Inc.309), however, plaintiffs are entitled to a presumption that they relied on the material misstatement if they transacted in an “efficient” market.310 Some courts have recognized that a large amount of institutional ownership of a particular security is an important factor weighing in favor of a finding of market efficiency,311 and 13F data is useful to support or challenge such an argument. But the level of institutional ownership is not usually a primary factor driving this legal question. Courts have articulated a set of five primary312 and three additional313 factors for determining market efficiency. The level of institutional ownership appears on neither list. 3. Claims processing After a settlement has been reached, claims administrators might use 13F to help identify potential claimants. One informational intermediary314 stated that its law-firm clients were concerned the SEC’s proposal to curtail 13F reporting would make it harder “to identify eligible claimants” in securities 307. Id. at 268. 308. 485 U.S. 224 (1988). 309. 573 U.S. 258. 310. Basic, 485 U.S. at 246-47; Halliburton, 573 U.S. at 269. 311. Cosby v. KPMG, LLP, No. 16-cv-00121, 2020 WL 3548379, at *20 (E.D. Tenn. June 29, 2020); Bennett v. Sprint Nextel Corp., 298 F.R.D. 498, 511 (D. Kan. 2014); In re HealthSouth Corp. Sec. Litig., 261 F.R.D. 616, 637 (N.D. Ala. 2009); In re Enron Corp. Sec. Derivative & “ERISA” Litig., 529 F. Supp. 2d 644, 756 (S.D. Tex. 2006); Serfaty v. Int’l Automated Sys., Inc., 180 F.R.D. 418, 423 (D. Utah 1998) (finding that a small amount of institutional ownership weighed against a finding of efficiency); City of Ann Arbor Emps.’ Ret. Sys. v. Sonoco Prods. Co., 270 F.R.D. 247, 256 (D.S.C. 2010); Di Donato v. Insys Therapeutics, Inc., 333 F.R.D. 427, 441 (D. Ariz. 2019); In re CenturyLink Sales Pracs. & Sec. Litig., 337 F.R.D. 193, 207 (D. Minn. 2020). 312. Cammer v. Bloom, 711 F. Supp. 1264, 1286-87 (D.N.J. 1989) (listing the following factors for determining whether a stock trades on an efficient market for purposes of the Basic presumption: (1) the stock’s average weekly trading volume; (2) the number of securities analysts that followed and reported on the stock; (3) the presence of market makers and arbitrageurs; (4) the company’s eligibility to file a Form S-3 registration statement; and (5) a cause-and-effect relationship, over time, between unexpected corporate events or financial releases and an immediate response in stock price). 313. Krogman v. Sterritt, 202 F.R.D. 467, 474 (N.D. Tex. 2001) (listing the following additional factors for determining whether a stock trades on an efficient market: “(1) the capitalization of the company; (2) the bid–ask spread of the stock; and (3) the percentage of stock not held by insiders”). 314. See supra Part I.B.2. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1453 class actions.315 In her detailed study of the claims-administration process, however, Jessica Erickson suggests that 13F does not play an important role; instead, she describes how claims administrators typically just “send notice of the settlements and the accompanying claim forms to banks and brokers,” who are then “supposed to pass along these notices to their investor clients.”316 Accordingly, it is unclear whether 13F has any significant effect in this context. 4. Facilitating settlement 13F may facilitate settlement by supporting more determinate damages models. Damages experts often incorporate 13F data into their trading models,317 although simple reliance on 13F typically will not suffice. Because 13F reports are only published quarterly, they do not provide the kind of granularity needed to accurately estimate or model damages.318 But experts sometimes rely on 13F to identify upper and lower bounds for damages. Most importantly, 13F can help identify the number of outstanding shares that stayed under the control of a single institution during the class period (and therefore were not bought or sold in reliance on any material misstatement or omission), establishing a ceiling on the number of shares that should be included in an expert’s trading model.319 In some cases, experts may also be able to use 13Fs to identify a minimum number of shares that they know did change hands during the class period (because they were purchased or sold by reporting institutions), which can establish a floor for the number of shares to be included in a trading model.320 315. See WhaleWisdom Comment, supra note 115, at 2. 316. Erickson, supra note 117, at 1826. 317. Joseph Thompson, David Neuzil & Paul Skluzak, How to Calculate Securities Fraud Class Size with SEC Data, LAW360 (Sept. 11, 2020, 2:00 PM EDT), https://perma.cc/7LT9- AF2E (to locate, select “View the live page”). 318. People ex rel. James v. Exxon Mobil Corp., No. 452044/2018, 2019 WL 6795771, at *28- 29 (N.Y. Sup. Ct. Dec. 10, 2019) (endorsing a critique of an expert’s bare reliance on 13F data). 319. CATHERINE J. GALLEY, ERIN E. MCGLOGAN & PIERRICK MOREL, CORNERSTONE RSCH., APPROVED CLAIMS RATES IN SECURITIES CLASS ACTIONS 2 (2017), https://perma.cc/Z6B4- J3LQ (noting that one “common adjustment[]” in damages models is to subtract the “estimated long-term holdings by larger institutional investors” as indicated on 13Fs); MARCIA KRAMER MAYER, NERA ECON. CONSULTING, BEST-FIT ESTIMATION OF DAMAGED VOLUME IN SHAREHOLDER CLASS ACTIONS: THE MULTI-SECTOR, MULTI- TRADER MODEL OF INVESTOR BEHAVIOR 7-8 (2000), https://perma.cc/C6HN-V4EU (similar). 320. Reporting Threshold for Institutional Investment Managers, 85 Fed. Reg. 46,016, 46,023 n.51 (July 31, 2020) (to be codified at 17 C.F.R. pts. 240, 249) (noting that some private securities actions “use Form 13F data to produce a more reliable, ‘lower bound’ estimate of damages” and that “a reduction in publicly available Form 13F data may result in increased use of other methods to estimate shareholder harm”). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1454 The vast majority of securities class actions are either dismissed or settled without any adversarial testing of damages calculations.321 But these damages calculations play an important role in facilitating settlement negotiations.322 Some economic settlement models project that the greater the information asymmetries between the parties, the less likely a case is to settle.323 For instance, if only the corporate defendant knows the extent of its own negligence, a plaintiff will not know how much to settle for and may decide to proceed to trial rather than accept a settlement offer that could be too low.324 To the extent that this theory is correct, the information provided by 13F somewhat mitigates this asymmetry or divergence by providing some objective information about the number of shares traded in the marketplace during the class period. 13F thus may facilitate the parties’ ability to come together and reach a settlement.325 The effect, however, is not necessarily significant. Even with 13F, the parties are still likely to have widely divergent initial estimates of damages, not to mention divergences in their understanding of the strengths of the underlying case. The damages models used in securities class actions are notoriously imprecise, necessarily involving a host of debatable assumptions about trading behavior in order to estimate the number of investors who bought (or sold) shares during the class period, at what prices, how many of the acquisitions were made by “in-and-out” traders (buying and selling at the 321. Because of this infrequency, at least one leading casebook does not even cover damages in its chapter on Rule 10b-5. See COFFEE ET AL., supra note 10, at 1039-166. 322. See GALLEY ET AL., supra note 319, at 1. 323. E.g., Lucian Ayre Bebchuk, Litigation and Settlement Under Imperfect Information, 15 RAND J. ECON. 404, 405, 409, 414 (1984). The main rival theory is that the parties’ “divergent expectations,” rather than their access to information, is the primary reason settlement fails to occur—for example, the parties’ mutual optimism or overconfidence about their respective prospects at trial will interfere with settlement even when they have access to identical information. George L. Priest & Benjamin Klein, The Selection of Disputes for Litigation, 13 J. LEGAL STUD. 1, 18 (1984); see also, e.g., William H.J. Hubbard, Testing for Change in Procedural Standards, with Application to Bell Atlantic v. Twombly, 42 J. LEGAL STUD. 35, 38-39 (2013) (describing the information-asymmetry and divergent-expectations models as the “two canonical” models of settlement). For a review of studies elaborating on and applying these competing theories, see Daniel Klerman, The Economics of Civil Procedure, 11 ANN. REV. L. & SOC. SCI. 353 (2015). 324. See Yun-chien Chang & William Hubbard, Does the Priest and Klein Model Travel? Testing Litigation Selection Hypotheses with Foreign Court Data 2-3 (Univ. of Chi. L. Sch., Coase– Sandor Working Paper Series in L. & Econ. No. 838, 2018), https://perma.cc/6UJS- LUXT. 325. Cf. id. at 3 (noting that one “obvious policy prescription that might flow from [the information-asymmetry model] is to eliminate information asymmetry” by enabling “broad discovery” at the outset of legal disputes, as the Federal Rules of Civil Procedure do). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1457 can use engagement to pass along valuable information in their possession to management;339 and that engagement can allow both sides to avoid unnecessary and costly confrontations.340 Critics, on the other hand, worry that engagement is a vehicle that serves the interests of the few largest shareholders at the expense of others.341 Empirical evidence has failed to resolve this question, in part because hard data on engagement is difficult to come by (since there is no necessary paper trail for these interactions).342 Existing studies have relied on proprietary datasets provided by institutional investors regarding their targeted engagements with portfolio companies to analyze the effects of engagement.343 But because these studies focus on shareholder-initiated engagements, not management-initiated ones, they are inapposite here. Accordingly, the normative upshot of 13F’s subsidy of managerial engagement is uncertain. 2. Shareholder-initiated engagement Much of the current dialogue about engagement focuses on shareholder- driven engagement.344 But 13F’s impact in this domain is likely to be limited. Shareholders do not need to read their own 13F filings to know what companies they invest in. One possible way for 13F disclosures to facilitate shareholder-driven engagement is to help busy managers select which shareholder-requested meetings to take and which to decline.345 According to some accounts, shareholders may overstate (or simply lie about) their holdings to get a meeting 339. Eckstein, supra note 56, at 512-13, 550-61. 340. Fairfax, supra note 334, at 832-34. 341. Virginia Harper Ho, Nonfinancial Risk Disclosure and the Costs of Private Ordering, 55 AM. BUS. L.J. 407, 453-54 (2018). 342. McCahery et al., supra note 332, at 2905 (“[W]e have little direct knowledge regarding how institutional investors engage with portfolio companies, as many of these interactions occur behind the scenes . . . .”). 343. See Andreas G.F. Hoepner, Ioannis Oikonomou, Zacharias Sautner, Laura T. Starks & Xiao Y. Zhou, ESG Shareholder Engagement and Downside Risk 4 (Eur. Corp. Governance Inst., Fin. Working Paper No. 671/2020, 2022), https://perma.cc/RBQ2-P3DM; Tamas Barko, Martijn Cremers & Luc Renneboog, Shareholder Engagement on Environmental, Social, and Governance Performance, 180 J. BUS. ETHICS 777, 778 (2022); see also Azar et al., supra note 202, at 678 (finding that Big Three engagements with particular companies—as disclosed in their annual investment-stewardship reports—correlate with declines in their carbon dioxide emissions as listed by Trucost). 344. E.g., Fisch & Sepe, supra note 22. 345. See NIRI Comment, supra note 146, at 2; Ctr. for Cap. Mkts. Comment, supra note 226, at 4; Soc’y for Corp. Governance Comment, supra note 115, at 7-9; NAM Comment, supra note 208, at 3; Nasdaq Comment, supra note 208, at 1; NYSE Comment, supra note 149, at 4. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1458 with an executive or director. 13F provides an objective check on this behavior.346 Absent 13F, however, managers could readily require that any shareholders requesting a meeting submit brokerage statements confirming their purchases of the company’s securities (as they are required to do when they file claims for securities class-action settlements).347 True, shareholders could fabricate brokerage statements, or send in outdated or incomplete ones. But 13F is hardly an ironclad solution itself. An investor holding $0 in a stock on March 30 could acquire $100 million at the end of the quarter on March 31, sell it all the next day on April 1, report the $100 million end-of-quarter position on Form 13F, and then use 13F to demand a meeting. Accordingly, 13F does not appear to play a significant role in facilitating shareholder-driven engagement. 3. Coordinated engagement Finally, 13F may facilitate “coordinated engagement” by multiple (non- activist) institutional investors. A recent empirical study of such coordinated engagement orchestrated by the U.N.’s PRI (Principles for Responsible Investment) on the topic of environmental and social issues showed that this strategy can be particularly effective in bringing about desired changes.348 13F may facilitate these coordinated engagements. The aforementioned study of the PRI coordination mechanism explained that “after one or several investors identify an issue relating to a company or sector and determine that there is a case for change,” the PRI selects a “lead” investor for the engagement and then works with that investor to recruit “supporting investors” to join the team, sending “engagement invitations” to PRI signatories and others.349 Although the study did not address 13F specifically, it is reasonable to suppose that 13F data can assist in the identification of potential supporting investors.350 346. E.g., NIRI Comment, supra note 146, at 2 n.3; Soc’y for Corp. Governance Comment, supra note 115, at 8. 347. Erickson, supra note 117, at 1826. 348. See Dimson et al., supra note 24, at 6-7, 28-31, 35; see also Jean-Pascal Gond & Valeria Piani, Enabling Institutional Investors’ Collective Action: The Role of the Principles for Responsible Investment Initiative, 52 BUS. & SOC’Y 64 (2013); Gaia Balp & Giovanni Strampelli, Institutional Investor Collective Engagements: Non-activist Cooperation vs Activist Wolf Packs, 14 OHIO ST. BUS. L.J. 135 (2020). 349. Dimson et al., supra note 24, at 3, 5 & n.6, 14, 26 n.19. 350. The study acknowledges some legal questions regarding how Regulation Fair Disclosure would apply to such actions, and its results are drawn from global firms. Id. at 3, 15 & n.9. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1459 The normative upshot of this is contestable. Gaia Balp and Giovanni Strampelli argue that coordinated engagements are beneficial because they help institutional investors overcome various obstacles to more active engagement with firms by distributing the costs of engagement, limiting collective-action problems, and sharing information and expertise (among other advantages).351 But, as discussed above, this argument assumes that the underlying interests of shareholders are well aligned to produce socially beneficial results—an assumption that remains hotly contested.352 E. Tacit Shareholder Influence 13F may also serve as a channel to convey investor preferences to managers without any actual interaction or conversation occurring. Institutional investors hold divergent interests and preferences as to optimal management of the companies they own.353 Some have long investment horizons and might prefer the company to invest in projects that allow for steady growth over the long term, while others may prefer projects that optimize returns over a shorter horizon.354 Some institutions bet on a single company to beat the competition; others bet on an entire industry; still others bet on the entire market. These institutions may also hold divergent positions on how companies should act regarding politically charged topics such as climate change, diversity, and political spending. And some institutional investors may represent the particular interests of groups, like labor unions, who have a strong financial interest in steering corporate policy in their favor.355 Corporate officers and directors have strong incentives to learn about these preferences. Because directors are elected by shareholders, they may want to appease these shareholders in order to keep their jobs.356 Managers, in turn, are accountable to the directors, and both have their compensation reviewed and voted on by shareholders. Separately, corporate directors have a fiduciary 351. Balp & Strampelli, supra note 348, at 183-94. 352. See supra Part I.A. 353. See Jay Clayton, Chairman, SEC, Opening Remarks to SEC–NYU Dialogue on Securities Markets #4: Shareholder Engagement (Jan. 19, 2018), https://perma.cc/8TB7- TEJR. 354. STOUT, supra note 65, at 63-73; Strine, supra note 191, at 7-8; MARTIN LIPTON, WACHTELL, LIPTON, ROSEN & KATZ, THE NEW PARADIGM: A ROADMAP FOR AN IMPLICIT CORPORATE GOVERNANCE PARTNERSHIP BETWEEN CORPORATIONS AND INVESTORS TO ACHIEVE LONG-TERM INVESTMENT AND GROWTH 5 (2016), https://perma.cc/X57D- F5BD. 355. DAVID WEBBER, THE RISE OF THE WORKING CLASS SHAREHOLDER: LABOR’S LAST BEST WEAPON, at xii (2018). 356. Fairfax, supra note 334, at 832-33. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1462 The rise of modern portfolio theory and diversification368 has brought this scenario to life. Today, a substantial proportion of Delta Airlines shareholders are also invested in American Airlines and Delta’s other competitors.369 A string of empirical studies has confirmed what theorists long argued: The increased rate of common ownership across these concentrated industries is correlated with decreased competition, increased prices, and decreased output.370 This literature, however, remains hotly contested.371 One key criticism is that there is no plausible “causal mechanism” by which these diversified institutional owners relay their anticompetitive desires to management to take anticompetitive actions.372 Given the risk of antitrust violations, the strong incentives these institutions have to remain passive and deferential to management, and the relatively minor benefits at stake, scholars have argued that it is just not plausible to imagine any of these institutional investors calling up the CEO of Delta and asking for a price increase.373 368. See supra Part I.A. 369. See Elhauge, supra note 366, at 1267; José Azar, Martin C. Schmalz & Isabel Tecu, Anticompetitive Effects of Common Ownership, 73 J. FIN. 1513, 1525 (2018). 370. See Azar et al., supra note 369, at 1519; José Azar, Sahil Raina & Martin Schmalz, Ultimate Ownership and Bank Competition, 51 FIN. MGMT. 227, 232-33 (2022). For a review of the empirical literature to date, see Einer Elhauge, How Horizontal Shareholding Harms Our Economy—And Why Antitrust Law Can Fix It, 10 HARV. BUS. L. REV. 207, 213- 14, 217-19, 239-44 (2020); Elhauge, supra note 26, at 3 n.1. 371. E.g., Jeremy McClane & Michael Sinkinson, Uncommon Implications of the Common Ownership Hypothesis 3-7 (Sept. 1, 2021) (unpublished manuscript), https://perma.cc/ 7YH6-PYM4; Katharina Lewellen & Michelle Lowry, Does Common Ownership Really Increase Firm Coordination?, 141 J. FIN. ECON. 322, 323 (2021); Andrew Koch, Marios Panayides & Shawn Thomas, Common Ownership and Competition in Product Markets, 139 J. FIN. ECON. 109, 111 (2021); see also MATTHEW BACKUS, CHRISTOPHER CONLON & MICHAEL SINKINSON, THE COMMON OWNERSHIP HYPOTHESIS: THEORY AND EVIDENCE 1-2 (2019), https://perma.cc/KY6R-FLT9 (providing a skeptical review of the literature). For a critique based on antitrust law, see generally Thomas A. Lambert, Mere Common Ownership and the Antitrust Laws, 61 B.C. L. REV. 2913 (2020). For critiques based on the lack of a “causal mechanism,” see the sources cited in note 372 below. 372. Org. for Econ. Coop. & Dev. [OECD], Hearing on Common Ownership by Institutional Investors and Its Impact on Competition—Note by the United States, ¶ 13, OECD Doc. DAF/COMP/WD(2017)86 (Dec. 6, 2017), https://perma.cc/5CLX-9WVV; Bebchuk & Hirst, supra note 56, at 2131-33; C. Scott Hemphill & Marcel Kahan, The Strategies of Anticompetitive Common Ownership, 129 YALE L.J. 1392, 1397-99, 1447-48 (2020); Noah Joshua Phillips, Comm’r, FTC, Taking Stock: Assessing Common Ownership, Remarks at the Concurrences Review and NYU Stern Global Antitrust Economics Conference 5-6 (June 1, 2018), https://perma.cc/P95H-LEAH. 373. See, e.g., sources cited supra note 372. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1463 Einer Elhauge, a leading proponent of the common-ownership thesis, has theorized that 13F may provide an answer.374 13F provides officers and directors with insight into one potentially important dimension of their shareholders’ financial interests: the extent to which these shareholders are also invested in the firm’s competitors. A director or officer might learn from 13F that a substantial portion of her firm’s shareholders are also invested in the firm’s main competitors, and thus would not stand to gain from aggressive competition against those firms. To the extent that directors or officers are motivated to please or accommodate the interests of their particular shareholders,375 13F may undermine product market competition. But there has not been any concrete evidence that managers use 13F for this purpose—until now. In opposing the SEC’s 2020 proposal, several leading interest groups representing issuers explicitly confirmed that it is common practice for issuers to use 13F disclosures to understand their shareholders’ entire portfolios, including their exposure to industry competitors. For instance, the National Association of Manufacturers urged the SEC not to cut back on 13F because issuers use 13F disclosures to understand “shareholders’ portfolios” and the extent to which investors have “exposure to a certain industry,” and to compare their shareholder base with that of “industry peers.”376 The National Mining Association similarly emphasized that 13F helps issuers “understand shareholder portfolios.”377 These statements by leading interest groups representing the desires of corporate issuers strongly support the theory that the road from common ownership to anticompetitive firm conduct may run through 13F.378 To the extent that 13F is indeed driving the anticompetitive effects of common ownership, this is a harmful outcome for at least one key set of corporate stakeholders—namely, consumers who are forced to pay higher prices. It may also contribute to other economic problems, including declining corporate investment and output,379 persistently weak links between CEO pay 374. Elhauge, supra note 366, at 1270 (noting that “[w]ithout any active communication, corporate managers know the identity of their shareholders and the fact that their shareholders also own shares in their rivals” because “SEC rules require all institutional investors to disclose all their holdings quarterly”). 375. See supra notes 356-57 and accompanying text. 376. NAM Comment, supra note 208, at 4. 377. NMA Comment, supra note 115, at 2-3. 378. To be clear, according to proponents, the plausibility of the anticompetitive effect of common ownership does not necessarily depend on managers or directors knowing who their shareholders are. See, e.g., Elhauge, supra note 26, at 13-18, 22-23. 379. Elhauge, supra note 366, at 1281-91; Elhauge, supra note 370, at 218-22. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1464 and firm-specific (as opposed to industry-wide) performance,380 and rising economic inequality.381 * * * Although this Part has attempted to offer a global analysis of 13F’s impacts on corporate governance, there are undoubtedly some important issues left out of the foregoing discussion. For instance, 13F’s unique applicability to institutional (and not retail) investors may have a significant impact on the relative power that each group exercises across various governance domains. It is possible that this may tend to (further) weaken the comparative influence of retail investors in corporate governance. Using 13F, activists, shareholder-proposal proponents, corporate managers, and others can (and do) take various governance actions based on the composition of the institutional shareholder base of a given company, but not the retail shareholder base. On the other hand, preserving the anonymity of these retail shareholders may actually serve to strengthen the independence of their voice. Similarly, 13F may play an important role in the market for corporate control. Acquirers may well consider the composition of a targets’ shareholder base before deciding to move forward with an acquisition, just as hedge fund activists do before launching an attack. And proponents and opponents of a merger may use 13F data to identify shareholders to lobby ahead of contentious merger votes. These issues, and other topics not addressed above, should be the subject of future research. III. Implications 13F has a substantial impact on a broad range of corporate-governance processes. Given the neglect of this provision by scholars to date, this general finding is itself an important contribution to the literature. But the nature of 13F’s impact is neither generalizable nor reducible to a simple formula. The winners and losers appear to vary by domain. And the net consequences—for shareholders and for society at large—are difficult to assess and point in 380. Elhauge, supra note 366, at 1278-81; Elhauge, supra note 370, at 216-18; Miguel Antón, Florian Ederer, Mireia Giné & Martin C. Schmalz, Common Ownership, Competition, and Top Management Incentives 2 (Eur. Corp. Governance Inst., Fin. Working Paper No. 511/2017, 2022), https://perma.cc/ZD6J-9TXD. But see David I. Walker, Common Ownership and Executive Incentives: The Implausibility of Compensation as an Anticompetitive Mechanism, 99 B.U. L. REV. 2373, 2375-77 (2019). 381. Elhauge, supra note 366, at 1291-301; Elhauge, supra note 370, at 219-22, 241-42; Zohar Goshen & Doron Levit, Common Ownership and the Decline of the American Worker (Eur. Corp. Governance Inst., L. Working Paper No. 584/2021, 2021), https://perma.cc/ 457Q-DQ5T. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1467 taking action, the more likely that conditions on the ground will shift: other attractive opportunities may come and go; the potential target’s institutional ownership may change, making it less amenable to an activist campaign; market conditions may make activism more or less profitable; and so on. Managers of activist funds are likely to have their compensation structured in a way that encourages speed.388 And research confirms that activists typically hold their positions for relatively short periods.389 All of this should be familiar: It is precisely this investment model that motivates the key criticism of hedge fund activists as producing only short- term gains in value.390 Indeed, critics of hedge fund activism have proposed solutions that would impose penalties or otherwise limit the rights of shareholders who hold stocks for short periods.391 The reasons hedge funds tend not to hold positions for very long would presumably remain just as powerful notwithstanding any change to 13F, and this would likely mitigate any “going dark” effect. On the other hand, switching from quarterly to monthly 13F reporting and shortening the disclosure window from forty-five days to two days would likely have a substantial negative impact on the volume of hedge fund activism. This proposal would dramatically shorten (by about 80%) the period in which activists can build their positions before detection by managers or the marketplace, from four and a half months to one month and two days. Upon detection, management can put into place various defensive strategies which can reduce the activist’s prospects of success. Similarly, once an activist’s presence is revealed to the market, other investors may pile into the stock (in anticipation that the activist will launch a value-enhancing campaign), causing the price to go up, making it more expensive for the activist to continue to build its position, and thereby eating into the prospective returns.392 In both cases, shifting to monthly reporting with an abbreviated reporting window would significantly raise the costs of activism, and thus would likely lead to a reduction in the volume of activism in the market. Governance, 2014 BYU L. REV. 1015, 1046; Strine, supra note 179, at 1944; Coffee & Palia, supra note 179, at 567. 388. Strine, supra note 179, at 1915. 389. Brav et al., supra note 232, at 1749. 390. Iman Anabtawi & Lynn Stout, Fiduciary Duties for Activist Shareholders, 60 STAN. L. REV. 1255, 1290-91 (2008); see also supra note 191 (collecting sources critical of hedge fund activism). 391. Andrew Ross Sorkin, Hillary Clinton Aim Is to Thwart Quick Buck on Wall Street, N.Y. TIMES: DEALBOOK (July 27, 2015), https://perma.cc/CA69-HGA8; Coffee & Palia, supra note 179, at 594-95. 392. See Bebchuk & Jackson, supra note 75, at 43, 50. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1468 A strong argument can be made that this means 13F should not be made more frequent, for similar reasons as articulated by Bebchuk and Jackson in opposition to the proposal to speed up blockholder disclosures.393 As discussed above, Bebchuk and Jackson cautioned against shortening the reporting window for 13D from ten days to one; they argued that, since blockholders provide key governance benefits linked to their ability to build a position in secret, shrinking the reporting window would eliminate this secrecy, cut into blockholders’ returns, and diminish their incentives to provide governance benefits.394 Similarly, in the context of 13F, it may be argued that hedge fund activists provide key governance benefits, that their incentives to provide these benefits depend in part on their ability to build positions over time in secret, and that tightening the reporting window from four and a half months to one month would undermine this secrecy, impair their ability to make returns, and reduce their incentives to provide governance benefits. But there is a critical difference between the Bebchuk and Jackson article and this one: The literature on activists has evolved substantially in the intervening years.395 Today, it is more difficult to definitively conclude that discouraging activism per se will be harmful, on net, to shareholders. Thus, while ramping up the frequency of 13F would clearly tend to reduce the level of activism, it is difficult to reach a firm conclusion as to whether this effect is beneficial or harmful. 2. Shareholder proposals In the domain of shareholder proposals, shareholders might be better off with less transparency about institutional-investor holdings. Reducing the volume of 13F reports could bolster sponsors of shareholder proposals and other shareholders who support them. As explained above, 13F plays a key role in enabling management to “always win the close ones.”396 Taking away this informational subsidy might actually increase the rate of success for sponsors. Making 13F disclosures more frequent and timelier might have the opposite effect, exacerbating management’s asymmetric advantages in winning closely contested votes on shareholder proposals. This effect arguably provides a good reason to not enhance the frequency of 13F—and perhaps even to reduce or eliminate it. As discussed above, there is some evidence that managerial victories in closely contested shareholder 393. See supra Part I.A. 394. See supra Part I.A. 395. See supra text accompanying notes 190-96 (surveying the conflicting empirical literature on hedge fund activism). 396. See supra Part II.B.2; Listokin, supra note 276, at 161-62. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1469 proposals are bad for shareholder value.397 Accordingly, by enabling management to snatch victories away from shareholders, 13F plausibly seems to harm shareholders—who may be better off without it. 3. Shareholder litigation It is unlikely that any proposed change to 13F would have a significant effect on shareholder litigation. Reducing the volume of 13F disclosures might impede settlements by taking away parties’ ability to rely on this information as a backstop in damages calculations in securities class actions. But the effect is likely to be small. As discussed above, this information comprises only a small part of the damages calculation, and it still leaves room for substantial disagreement between the parties. Further, securities class actions that survive a motion to dismiss invariably settle and do not proceed to trial.398 There are many reasons for this, and those reasons are unlikely to change even if 13F were to disappear. Accordingly, the parties would still likely find a way to reach a settlement, and the effect of 13F changes may simply be to push these settlements to a later stage of litigation, increasing costs to parties. Similarly, speeding up the frequency of 13F disclosures could enhance the ability to settle by producing more reliable estimates of damages caps (thus generating more certainty for the parties regarding their prospects). But even monthly disclosures provide a limited picture of market activities in the underlying securities during the class period, and such disclosures would still leave a substantial amount of the calculation subject to rival expert trading models with various assumptions. So, once again, the effects on shareholder litigation are likely to be fairly marginal. 4. Engagement Altering 13F might have a significant impact on management-driven shareholder engagement. Curtailing 13F could obstruct management’s ability to identify its shareholder base, and therefore make it more difficult (if not impossible) for management to engage with shareholders. Speeding up 13F disclosures, on the other hand, could make it easier for management to quickly identify significant changes in the magnitude of positions by existing shareholders and proactively engage them on that basis.399 397. See supra text accompanying note 266. 398. STEPHEN J. CHOI & A.C. PRITCHARD, SECURITIES REGULATION: CASES AND ANALYSIS 248 (5th ed. 2019). 399. While a shorter disclosure window would enable managers to more quickly spot and proactively engage a newer shareholder, engagement is typically defended as a strategy for building relationships with longer-term shareholders. See supra text accompanying notes 332-38. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1472 Even for the companies and offerings subject to the full force of mandatory disclosure, many categories of material information need not be disclosed. While “market transparency” would be enhanced by imposing a general duty to disclose all material information, the securities laws have never imposed such a duty.410 Instead, disclosure rules embody a respect for opacity, recognizing that mandated transparency might do more harm than good even when the information would be highly relevant to an investor’s trading decision.411 Similarly, the securities laws require individuals in possession of material nonpublic information to either disclose or abstain from trading—but not always.412 The goal of “market transparency” might be best served by a flat rule prohibiting trading on inside information in all cases, but the law has long rejected such a prohibition. As the Court explained in Dirks v. SEC : “Imposing a duty to disclose or abstain solely because a person knowingly receives material nonpublic information from an insider and trades on it could have an inhibiting influence on the role of market analysts, which the SEC itself recognizes is necessary to the preservation of a healthy market.”413 Perhaps the example most closely on point is blockholder disclosure, as required under section 13(d) of the Exchange Act.414 As previously discussed, investors who acquire more than 5% of a company’s stock must disclose this fact to the SEC and to the marketplace.415 But the rule builds in a substantial delay of ten days between the time the investor crosses the 5% threshold and the time the disclosure must be filed.416 If “market transparency” were the primary goal, this would call for eliminating the delay and requiring immediate reporting by investors who cross the 5% threshold. Indeed, some have proposed that the SEC make exactly this change.417 And yet the Agency 410. E.g., CHOI & PRITCHARD, supra note 398, at 50; COFFEE ET AL., supra note 10, at 921. But see Elad L. Roisman, Statement at Open Meeting on Disclosure of Payments by Resource Extraction Issuers, SEC (Dec. 16, 2020), https://perma.cc/4ZKM-2QKX (“[O]ur existing rules require disclosure of all material information.”). 411. Basic Inc. v. Levinson, 485 U.S. 224, 234-35, 239 n.17 (1988) (explaining that the securities laws allow companies to avoid disclosing material merger negotiations to investors, and that this avoidance may help “avoid a ‘bidding war’ over [the] target”). 412. See Chiarella v. United States, 445 U.S. 222, 232-35 (1980) (rejecting the conviction of an individual notwithstanding the fact that he traded on material nonpublic information); Dirks v. SEC, 463 U.S. 646, 659-62 (1983) (rejecting an SEC enforcement action against an individual notwithstanding the fact that he had passed along material nonpublic information to individuals who traded on it). 413. Dirks, 463 U.S. at 658. 414. Exchange Act § 13(d), 15 U.S.C. § 78m(d); 17 C.F.R. § 240.13d-1 (2021). 415. Exchange Act § 13(d), 15 U.S.C. § 78m(d); 17 C.F.R. § 240.13d-1. 416. Exchange Act § 13(d), 15 U.S.C. § 78m(d); 17 C.F.R. § 240.13d-1. 417. See supra Part I.A (discussing Wachtell’s proposal to reform 13D). Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1473 has retained the ten-day delay. As explained above, scholars have articulated a strong policy justification for the delay: These blockholders arguably provide important corporate-governance benefits, and the ten-day reporting delay plays an essential role in incentivizing blockholders to take positions by enabling them to build those positions at a low price before the market learns of their presence and other investors pile in.418 Similarly, in the case of 13F, “market transparency” does not represent either a complete theoretical account of the rule’s purposes or a defensible justification for reform. This Article has shown that, in several areas, shareholders and other corporate stakeholders may be better off with less transparency regarding institutional holdings. For instance, in the domain of hedge fund activism, greater 13F transparency may chill potentially value- enhancing activity. In the domain of shareholder proposals, greater 13F transparency may exacerbate management’s asymmetric lobbying advantage ahead of closely contested votes. And in the domain of tacit shareholder influence, greater 13F transparency may facilitate the anticompetitive effects of common ownership, harming consumers. Properly evaluating 13F requires looking past its impact on “transparency” and understanding (1) the actual uses of this information in the marketplace; and (2) whether the benefits of such uses exceed their costs. Even the many commentators who opposed the SEC’s curtailment of 13F on the grounds that it would reduce “market transparency” seem to recognize that pure transparency is not a sound policy goal. Nasdaq and the Society for Corporate Governance—who opposed the curtailment of 13F on the grounds that it would put “transparency at risk”419 and “significantly reduce market transparency,”420 respectively—each also recently urged the Commission to reduce transparency by changing issuers’ periodic disclosure obligations from quarterly to semiannual.421 Management-side groups like the Business Roundtable, the Chamber of Commerce, the National Association of Manufacturers, and the National Investor Relations Institute—all of whom opposed the SEC’s efforts to curtail 13F on the grounds that it would harm “market transparency”—each opposed creating new transparency-enhancing 418. See supra Part I.A (discussing Bebchuk and Jackson’s argument regarding the importance of the ten-day delay). 419. Nasdaq Comment, supra note 208, at 1. 420. Soc’y for Corp. Governance Comment, supra note 115, at 3. 421. John Zecca, Nasdaq, Inc., Comment Letter on Earnings Releases and Quarterly Reports 8-9 (Mar. 21, 2019), https://perma.cc/L74C-722B; James G. Martin, Soc’y for Corp. Governance, Comment Letter on Earnings Releases and Quarterly Reports 3 (Apr. 19, 2019), https://perma.cc/KEF8-FBAY. Beyond “Market Transparency” 74 STAN. L. REV. 1393 (2022) 1474 ESG disclosures for issuers.422 The National Association of Manufacturers, who opposed the 13F proposal because it would create “a significant reduction in market transparency,”423 actually sued the SEC (successfully) to stop it from imposing additional disclosure obligations regarding “conflict minerals.”424 And CalPERS, which urged the SEC not to “relieve institutional investment managers from providing market transparency,”425 recently opposed the Agency’s proposal to mandate new disclosures for proxy advisors.426 This is not necessarily hypocrisy. The simple, but essential, point is that “market transparency” may be beneficial in some contexts and harmful in others. Evaluating 13F, and any other disclosure program, therefore requires looking at more than just “transparency.” Unfortunately, researchers’ blind spot for 13F has left policymakers without a complete evidentiary basis for policymaking in this domain. This Article will hopefully help spur on additional empirical research that will correct this deficiency. But even in the face of empirical uncertainty, policymakers still have a duty to consider the full range of likely and potential ramifications of their policy choices. Before expanding or contracting the scope and frequency of 13F reporting, policymakers must go beyond simple rhetorical appeals to “transparency” and actually explain why the likely benefits of their proposed changes on corporate governance would outweigh the costs. C. The Contingency of Corporate Governance Corporate scholars have a track record of relying on the outcomes of governance processes as indicia of “efficiency” or what “the market” wants.427 422. See John Hayes, Bus. Roundtable, Comment Letter on Business and Financial Disclosure Required by Regulation S-K, at 1 (July 21, 2016), https://perma.cc/W4HX- 7DTQ; Tom Quaadman, Ctr. for Cap. Mkts. Competitiveness, Comment Letter on Business and Financial Disclosure Required by Regulation S-K, at 2 (July 20, 2016), https://perma.cc/YA93-3W73; Christina Crooks, Nat’l Ass’n of Mfrs., Comment Letter on Business and Financial Disclosure Required by Regulation S-K, at 2 (July 21, 2016), https://perma.cc/SV7T-XG7S; Edward S. Knight, Nasdaq, Inc., Comment Letter on Business and Financial Disclosure Required by Regulation S-K, at 4 (Sept. 16, 2016), https://perma.cc/6EWZ-NREV; Matthew D. Brusch & Michael C. McGough, Nat’l Inv. Rels. Inst., Comment Letter on Business and Financial Disclosure Required by Regulation S-K, at 4 (Aug. 4, 2016), https://perma.cc/WZ2B-C7PM. 423. NAM Comment, supra note 208, at 2. 424. Nat’l Ass’n of Mfrs. v. SEC, 800 F.3d 518, 522, 524 (D.C. Cir. 2015). 425. CalPERS Comment, supra note 226, at 4. 426. Marcie Frost, CalPERS, Comment Letter on Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice 4 (Feb. 3, 2020), https://perma.cc/9H7P-Z3CX. 427. For a recent example, consider the argument—raised by both sides in the ongoing debates over whether the SEC should require companies to disclose political spending, footnote continued on next page