Parsing What Matters in a Storm of Changes to Issuer–Shareholder Engagement
The relationship between companies and their shareholders is a source of eternal debate. An explosion of potential regulatory changes put forward this year, and particularly within the past few weeks, goes right at changing this shareholder–company dynamic.
It is hard for any business leader to digest this volume of new information and even harder to discern what matters most.
Below is a list of key developments and our view on if the business world is over- or under-reacting to each topic:
The SEC’s announcement that it will not respond to most no-action requests to exclude Rule 14a-8 shareholder proposals.
Background: On November 17, the SEC’s Division of Corporation Finance announced that it will not respond to no-action requests for the exclusion of shareholder proposals under Rule 14a-8, except for no-action requests to exclude a proposal under Rule 14a-8(i)(1)—which allows companies to exclude proposals on matters that are not eligible for a shareholder vote under their governing law. In the latter case, Chair Atkins has invited companies to seek opinion from counsel in the state in which they are incorporated. The SEC said its decision stemmed from constrained resources following the government shutdown, a backlog of no-action requests, and a packed rulemaking agenda. This change came after Atkins foreshadowed changes to no-action requests regarding Rule 14a-8 proposals in an October speech.
Market Reaction: The market’s reaction has been mixed, with some suggesting this announcement marks the death of non-binding shareholder proposals. Some have gone so far to hypothesize this is going to curtail ESG activism, while others think shareholders will still find a way to express their views. Many think this change will spur litigation.
Our View:
Overreaction. This is an important process change, but not a major shift in how companies engage with investors. The new guidance shifts the onus of determining “reasonable basis” for excluding a shareholder proposal from the SEC to the Company and its counsel. It does not, however, change what “reasonable basis” is. Many proposals clearly meet existing standards (i.e., traditional governance proposals filed on time) or clearly don’t meet them in some way (i.e., a proposal filed after a deadline). The recent change will impact the proposals in the middle—where judgement is required. Some companies will opt to err on the side of caution and include proposals to avoid potential litigation from proponents, while others will opt to exclude more proposals. In short, we do not think shareholder proposals will disappear. But even if proposals on the proxy decline meaningfully, proponents will find a way to voice their dissent and raise topics to other shareholders—whether through withhold campaigns targeting director, zero slate campaigns, or other tactics.
Rumored executive orders that could curb the influence of proxy advisers and index-fund managers.
Background: On November 11, the Wall Street Journal reported that the White House is weighing at least one executive order that would restrict the influence of proxy advisers and index-fund managers. According to the article, the directive could ban shareholder recommendations from proxy advisers altogether or block recommendations on companies that have engaged proxy advisers for consulting work. In addition, the Journal reported that White House officials are considering a measure that would require index-fund managers to mirror their votes to those of clients who choose to vote. Later, during an interview on Fox Business, Chair Atkins said the SEC planned “to take action on the matter.’
Market Reaction: It’s possible that because this is a rumor and therefore not something tangible to which the market can react, conversation on the potential executive order has been relatively muted. Some have suggested that this development is unlikely to disrupt the current practices of proxy advisers and index fund managers, since these firms have been the target of potential regulatory scrutiny many times before.
Our View:
Underreaction. While these policies are still rumored, we think the momentum in D.C. and the pressure on the Big 3 merit more attention. The implications, particularly on Big 3 voting, could create significant confusion in investor engagement, empower a minority of more short-term oriented share capital, and, ironically, increase the influence of ISS and Glass Lewis. Boards and CEOs, who have spent years begrudging engagement on ESG topics, may not appreciate the benefits of consistency these stewardship teams provide. Below, we break out the potential implications for index funds and proxy advisers:
- Index Funds: Forced mirror voting would introduce remarkable challenges for investors and companies. It would also overlook how the stewardship models of the Big 3 have evolved over the past 1-2 years in the push for enhanced shareholder democracy (which we discussed in July). Previously, each of the Big 3 had one centralized stewardship team representing most, if not all, of their capital. That structure is gone. Now, each firm has two separate stewardship teams to represent different pools of capital. Further, and more importantly for this discussion, each of the Big 3 offers voting choice to a significant portion of its clients.1 This means most clients of the Big 3 have the option to A) cast their own vote based upon their own preferences, B) follow a variety of voting policies available to them, or C) delegate voting authority to investment and stewardship teams, which have recently become more customized, as mentioned above. Forced mirror voting would mean that the votes of all Big 3 clients would reflect decisions made by those in groups A) and B), both of which are unlikely to represent the views of Big 3 clients, broadly. (Notably, group B’s options include policies offered by proxy advisers, which would actually increase the influence of firms like ISS and Glass Lewis!) In addition, the implementation of mirror voting seems to overlook the very purpose that stewardship teams were created to serve: many clients of the Big 3 lack the resources to thoroughly research, engage with, and vote their shares at every portfolio company. Stewardship teams undertake these tasks on behalf of their clients. Lastly, and most importantly for companies, forced mirror voting would present incredible challenges to identifying the small subset of Big 3 clients responsible for the majority of votes.
- Proxy Advisers: A complete ban on providing recommendations to shareholders would affect investors in different ways. Many investors rely more on the underlying data proxy advisers provide to develop their own voting policies than on the proxy advisers’ conclusions for any given company. That said, many ballot items require subjective analysis, and the recommendations and commentary from proxy advisers is often a consideration for investors when they make decisions. The rumored policy change would most significantly impact investors who “robo-vote”—or automatically adopt proxy advisers’ voting recommendations—as they would no longer have voting recommendations to follow. This would lead to confusion on how these funds would choose to vote their shares.
The Federal Trade Commission’s investigation into whether proxy advisory firms have violated antitrust laws through unfair methods of competition.
Background: On November 12, the Wall Street Journal reported that the Federal Trade Commission is investigating whether ISS and Glass Lewis violated antitrust laws through their business of guiding shareholder votes on contentious topics.
Market Reaction: The FTC’s investigation into alleged anticompetitive practices of ISS and Glass Lewis is seen as unlikely to materially alter the proxy adviser landscape.
Our View:
Underreaction. The FTC’s investigation is the latest in a years-long effort by state attorneys general, members of Congress, and executive agencies to curb the influence of proxy advisers, and this campaign shows little sign of easing up. Proxy advisory is often thought of as a duopoly, but escalating political pressure could allow other firms to play a larger role in the proxy voting process. Broadridge has been actively lobbying on Capitol Hill to convince lawmakers that it is different from ISS and Glass Lewis. At the same time, it is attempting to win over ISS and Glass Lewis’ clients by poaching executives from both firms, according to The Wall Street Journal. Increased pressure on proxy advisers, combined with Broadridge’s efforts to provide investors with data that can be used to scale proxy voting policies, can lessen the impact of a single recommendation from ISS or Glass Lewis. J.P. Morgan and Morgan Stanley have stopped using ISS and Glass Lewis recommendations altogether. Now, they only use the proxy advisers’ data to develop their voting policies. Others could follow.
Glass Lewis transitioning away from its “house view” framework.
Background: On October 15, Glass Lewis announced a shift away from its single “house view” voting policy. It later sent a follow-up note to clients, clarifying its approach. Starting in 2027, instead of a single “house view,” the firm will likely provide research from four distinct viewpoints: 1) Management-Aligned, 2) Governance Fundamentals, 3) Active Owner, and 4) Sustainability. Active Owner would most closely represent the current “house view.”
Market Reaction: Many see Glass Lewis’s move away from a single “house view” as a meaningful pivot from a dominant voting recommendation relied upon by many clients. There has been speculation that this change will make it much harder to understand shareholders’ priorities and predict voting outcomes.
Our View:
Overreaction. Prior to this announcement, Glass Lewis already offered alternate policies, called “thematic policies.” The proxy adviser’s recent announcement effectively changes how policies are marketed and positioned to the general public. It is a shift from one highly promoted “house” policy, with the rest labelled “thematic” policies, to four equally-promoted policies, with none designated as the “house view.” Does that make it incrementally harder to predict votes? Maybe. But it’s worth a reminder that most large investors have their own customized voting policies and stewardship teams, so this change will primarily impact smaller shareholders’ voting behavior. Most of those smaller investors, in our view, will likely subscribe to the Active Owner or Governance Fundamentals policies if they previously subscribed to the “house view.” Overall, we expect the impact of this change to be minimal.
Quarterly reporting being replaced with semi-annual reporting.
Background: In September, President Trump suggested in a post on Truth Social that the SEC should shift corporate financial reporting from a quarterly cadence to a semiannual cadence. In response, an SEC spokesperson said that the agency is prioritizing its review of the proposal “to further eliminate unnecessary regulatory burdens on companies.”
Market Reaction: There has been a mixed reaction from the market, with many believing semiannual reporting could become the norm sooner than expected, while others arguing this change is unlikely to happen.
Our View:
Overreaction. Much of the relationship between a company, its investors, and even its creditors relies on the availability of information. This relationship has been forged with quarterly financial disclosure as a fundamental pillar and form of communication. It remains to be seen if the proposed changes are actually pursued by the SEC. That uncertainty, in itself, leads us to believe that the market’s response could be exaggerated. Further, if this policy is adopted, it is still unclear whether companies would benefit or be harmed by a decision to report financials on a less frequent basis. Investors are constantly seeking more information, not less. Hypothetically, if an investor is choosing to invest between two similar companies—one that provides quarterly financials and one that provides semiannual financials—it’s fair to assume that an investor would lean towards the company that discloses information more frequently. Creditors similarly prefer more information over less and frequently incorporate provisions for quarterly financial reporting into their agreements with companies. Notably, there is also a knock-on effect for quiet periods, insider trading policies, and more. Even if the SEC updates its policy, many companies may opt to maintain the quarterly reporting cadence.
Companies adopting retail voting auto-enrollment programs.
Background: On September 15, the SEC’s Division of Corporation Finance granted ExxonMobil’s no-action request to establish its “Retail Voting Program,” which will allow shareholders to authorize a standing voting instruction for their shares to be voted in accordance with management’s recommendations at each shareholder meeting. Participation is voluntary and cost-free, and shareholders will be able to apply their standing instruction to a) all matters that come to a vote or b) all matters except contested director elections or mergers, acquisitions, or divestitures that require shareholder approval. ExxonMobil has filed a Schedule 14A with sample invitations and a snapshot of the Retail Voting Program website.
Market Reaction: Some in the market anticipate broader adoption of retail voting programs, though others have pointed to the hurdles and costs that come along with adopting such a policy which will result in very limited adoption. Activist shareholders have characterized the program as way to entrench management and incumbent directors.
Our View:
Underreaction. While implementing a retail voting program is only practical for a certain set of companies, this change could unlock a meaningful and growing shareholder voice. Executing a program such as this will be expensive and time-intensive, requiring data and technology that are not currently available to the market at scale. A company would need to have a substantial retail base for the benefits to potentially outweigh the costs, which is not the case for many U.S.-based public companies. In addition, there has been limited news of the program’s adoption among retail shareholders. It still requires retail shareholders to act, even if just one time, to enroll in the program. Then the program needs to be maintained. However, if successful, it’s reasonable to expect cost of implementation to come down over time, thus making wider adoption of the program more viable. We will be closely following to see how many retail investors opt into ExxonMobil’s program in 2026, as the outcome could have broader implications for the viability of similar initiatives at other companies in the future.
The SEC adopting changes to 13D and 13G filing requirements.
Background: On February 11, The SEC announced changes to its Compliance and Disclosure Interpretations (C&DI) regarding 13D/13G filing requirements. Under the updated guidance, shareholders must certify that the securities were not acquired and held “for the purpose of or with the effect of changing or influencing the control of the issuer.” The SEC’s updated guidance states that Schedule 13G may be unavailable to a shareholder who conditions, explicitly or implicitly, its support on management taking a specific action, or states that it will not support the issuer’s nominees absent an underlying change.
Market Reaction: Many have acknowledged that major institutional investors, including BlackRock and Vanguard, temporarily halted engagements following the new SEC guidance. Market participants have pointed to a decrease in both the number of engagements and extent of constructive or candid dialogue in those engagements.
Our View:
Overreaction (now that time has passed). Undoubtedly, engagements have changed. Large investors are not requesting meetings or opining on agendas. They often read a legal preamble at the onset of each engagement and may be more guarded when discussing certain topics. Despite this, we believe market commentary has overstated the impact of this policy change. When engagements are planned carefully and approached effectively by companies (an important precursor), investor engagements have remained productive and informative, particularly in offseason engagement when there are no ballot items being discussed directly.
References
[1] Per the firm’s website, 93% of BlackRock’s Institutional Index equity assets are eligible for Voting Choice, as of October 2025. Vanguard Investor Choice represents more than 50% of the firm’s total U.S.-based equity index assets, according to its website. State Street’s proxy voting choice program covers 81% of the firm’s index equity assets, as indicated by the firm’s website.
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