Acting in concert: Meaning, Criticisms & Real-World Uses

What Is Acting in Concert?

Acting in concert refers to a situation where two or more individuals or entities knowingly participate in a joint activity or conscious parallel action toward a common goal, often without a formal agreement. This concept is crucial in the realm of corporate governance and securities regulation, particularly concerning the aggregation of voting power or ownership interests in a company. Parties are considered to be acting in concert when they agree to work collaboratively to achieve a mutual financial objective, such as influencing the management or corporate control of a company, or engaging in a specific transaction like an acquisition or takeover bid ³³. The intention behind acting in concert is to combine resources and influence, which might be difficult for individual entities to achieve independently due to financial or regulatory constraints.

History and Origin

The concept of acting in concert has deep roots in efforts to regulate corporate takeovers and ensure market transparency. Its origins can be traced to preventing the circumvention of mandatory bid rules, particularly in jurisdictions like the United Kingdom, where the UK Takeover Panel famously characterized concerted action as potentially being as subtle as "a nod or a wink"³¹, ³². The principle arose to aggregate shareholdings held by different persons who were coordinating their efforts, ensuring that buyers could not jointly acquire shares above a control threshold without triggering a mandatory bid³⁰.

Regulatory bodies globally, including the Securities and Exchange Commission (SEC) in the United States, have incorporated the concept of acting in concert into their frameworks to monitor significant share accumulations and potential changes in company control. For example, under SEC rules, a "group" of persons acting together to acquire, hold, vote, or dispose of securities is considered a single beneficial owner for reporting purposes²⁹. This historical evolution highlights the ongoing challenge for regulatory bodies to adapt rules to complex financial arrangements and collective actions in financial markets ²⁸.

Key Takeaways

Acting in concert describes when two or more parties cooperate toward a common financial objective, often related to influencing a company.
It typically involves an agreement or understanding, which may be informal, to acquire, hold, vote, or dispose of securities jointly.
This concept is critical in securities regulation to prevent undisclosed control accumulations and potential market manipulation.
Regulatory bodies like the SEC require aggregated reporting of holdings when parties are deemed to be acting in concert.
Failure to disclose acting in concert arrangements can lead to significant legal and financial penalties.

Interpreting the Acting in Concert

Interpreting when parties are acting in concert often depends on the specific jurisdiction and the context of the transaction. Generally, the determination focuses on whether there is a common objective or purpose and some form of coordination, even if unwritten²⁷. Regulators examine various factors to ascertain if parties are acting in concert, such as exchanging information, attending meetings, conducting discussions, or soliciting invitations to act together²⁶. The goal is to identify situations where separate entities are pooling their voting rights or investment power to exert influence that would otherwise trigger disclosure requirements if held by a single entity. The focus is less on formal agreements and more on evidence of collaborative behavior aiming for a shared outcome in relation to a company's control or management.

Hypothetical Example

Consider Company X, a publicly traded entity, with its shares widely distributed among various shareholders. Investor A holds 4% of Company X's equity securities. Separately, Investor B holds 3% and Investor C holds 2%. Individually, none of these investors cross the typical 5% beneficial ownership threshold that triggers significant reporting obligations with the SEC.

However, suppose Investor A, B, and C, unhappy with the current management of Company X, hold a series of private discussions. They agree to collectively vote their shares to replace two members of the board of directors and to support a particular strategic initiative. They also informally agree that if any of them decides to buy more shares, they will inform the others to potentially coordinate their purchases. In this scenario, even without a formal, written agreement, Investors A, B, and C could be deemed to be acting in concert. Their combined ownership totals 9%, exceeding the 5% threshold. As a "group," they would collectively be considered a single beneficial owner and would be required to file a Schedule 13D with the SEC, disclosing their collective holding and intent²⁴, ²⁵.

Practical Applications

The concept of acting in concert has several critical practical applications across financial markets and regulatory frameworks:

Mergers and Acquisitions (M&A): In M&A transactions, particularly hostile takeovers, identifying parties acting in concert is crucial. If a group of investors covertly accumulates shares intending to launch a takeover bid, their aggregated holdings can trigger mandatory bid rules or other compliance obligations designed to protect minority shareholders and ensure fair treatment²³. The UK Takeover Panel, for instance, aggregates holdings of concert parties to determine if the 30% control threshold for a mandatory offer is met²¹, ²².
Beneficial Ownership Reporting: Securities regulators, such as the SEC, require public disclosure of significant ownership stakes. Parties acting in concert are treated as a single entity for calculating beneficial ownership thresholds, necessitating filings like Schedule 13D or 13G once the aggregated ownership exceeds a certain percentage (e.g., 5% in the U.S.)¹⁹, ²⁰. Recent amendments to beneficial ownership reporting rules have shortened filing deadlines for these reports¹⁸.
Antitrust and Competition Law: In cases of proposed mergers or strategic alliances, competition authorities may investigate whether competing firms are acting in concert to reduce competition or engage in anti-competitive practices, even if they haven't formally merged¹⁷.
Corporate Governance and Shareholder Activism: The concept is vital in shareholder activism campaigns. Activist investors who informally coordinate their efforts to influence corporate policy or board composition may be deemed acting in concert, subjecting them to regulatory scrutiny and disclosure obligations¹⁶. The Corporate Transparency Act in the U.S. also aims to establish a central database of beneficial owners to combat illicit activities, further emphasizing the need for transparency in identifying controlling persons¹⁵.

Limitations and Criticisms

While the concept of acting in concert is essential for regulatory oversight and market fairness, its application can present limitations and draw criticism. One primary critique is the inherent ambiguity in defining what constitutes an "agreement or understanding," especially when it is informal or tacit¹⁴. This can lead to subjective interpretations by regulatory bodies, making it challenging for market participants to definitively know if their actions will be deemed concerted¹³.

Another limitation arises from the potential for the concept to stifle legitimate shareholder engagement and collaboration. Ordinary cooperation among shareholders on common issues, such as environmental, social, and governance (ESG) concerns, might inadvertently be caught under the broad definition of acting in concert, leading to unintended disclosure obligations or even penalties¹². This can deter shareholders from engaging in constructive dialogues or forming loose alliances that could otherwise improve corporate performance and accountability. Critics argue that an overly expansive interpretation could chill activism and genuine efforts to enhance corporate value¹¹. Furthermore, differing interpretations across various national legal systems can create inconsistencies and complexities for cross-border investments¹⁰.

Acting in Concert vs. Beneficial Ownership

While closely related, "acting in concert" and "beneficial ownership" are distinct concepts within securities law.

Feature	Acting in Concert	Beneficial Ownership
Definition	Two or more persons or entities knowingly participating in a joint activity or parallel action toward a common goal, typically involving control or influence over a company's securities.	The power to vote or dispose of a security, either directly or indirectly, regardless of who holds legal title. It concerns who ultimately owns or controls a corporation⁸, ⁹.
Focus	Collaboration and coordinated effort among multiple parties to achieve a shared objective related to securities, often affecting corporate control.	The ultimate control and economic interest in securities, whether held directly or indirectly through contracts, arrangements, or relationships⁷.
Aggregation	The actions and holdings of the concert party are aggregated and treated as if they were a single person or entity for regulatory purposes⁶.	Aggregation occurs when multiple individuals form a "group" that agrees to act together regarding securities, and all shares owned by any member of the group are aggregated for reporting⁵.
Trigger Event	The formation of an agreement or understanding (formal or informal) to pursue a common goal, regardless of individual holdings initially.	Exceeding a specific percentage threshold of ownership (e.g., 5% in the U.S.) of a class of voting securities, triggering reporting requirements³, ⁴.
Regulatory Link	Often used to determine if a group's collective influence or holdings trigger beneficial ownership disclosure requirements.	The direct outcome of crossing ownership thresholds, leading to the obligation to file reports like Schedule 13D or 13G with the SEC².

In essence, "acting in concert" is a mechanism by which multiple beneficial owners are grouped together, triggering collective disclosure and regulatory obligations that they might individually avoid.

FAQs

What kind of agreement constitutes "acting in concert"?

An agreement can be formal, informal, oral, or even implied through a "gentleman's agreement" or a "nod or a wink"¹. The key is a shared understanding or common purpose to achieve a specific financial objective, particularly concerning control or influence over a company.

Why is "acting in concert" regulated?

It is regulated primarily to ensure transparency in corporate ownership and control. Without such regulations, groups of investors could accumulate significant influence or control over a company without public disclosure, potentially disadvantaging other shareholders or facilitating activities like insider trading.

What are the consequences of undisclosed "acting in concert"?

Failure to disclose acting in concert can lead to severe legal and financial penalties, including fines, sanctions, and even forced divestiture of shares. Regulatory bodies worldwide are vigilant about such undisclosed arrangements to maintain fair and orderly markets.

Does "acting in concert" apply only to large investors?

No, the concept can apply to any group of individuals or entities, regardless of their size, if they coordinate their actions to achieve a common goal related to a company's securities. While often associated with significant shareholders or institutional investors, it can also apply to smaller groups in specific contexts like a joint venture.