Shareholder Engagement in Flux: Recent Developments and Practical Implications

Evolving regulatory and market dynamics are reshaping the shareholder engagement landscape with an impact on the 2026 proxy season and beyond. The Securities and Exchange Commission’s (“SEC”) recent announcement regarding Rule 14a-8 shareholder proposals combined with increased scrutiny of proxy advisors, the increase of vote no / withhold campaigns, the implementation of retail voting programs, and updated guidance on historically routine shareholder engagement practices, present new considerations for issuers and investors alike. This article examines the implications of these changes and offers insight into navigating shareholder engagement in the current environment.

History and Evolution of SEC Rule 14a-8 (“Shareholder Proposal Rule”)

In 1942, the SEC first introduced the shareholder proposal rule, allowing shareholders to include resolutions in a company’s proxy statement to be voted on by their fellow shareholders. The purpose of this rule was to allow a shareholder to act and perform the functions “which are [theirs] as owner of the corporation,”[1] including the ability to voice their opinions freely and democratically. Baldwin Bane, director of the SEC’s Division of Corporation Finance from 1934-1953, clarified the rule, stating that its purpose was to allow shareholders to address “matters relating to the affairs of the company [considered] proper subjects of stockholders’ action” and “not . . . matters which are of general political, social or economic nature (emphasis added).”[2] Over time, shareholder proposals have increasingly become vehicles for social and political expression, most recently on environmental and social issues. Current SEC Chair Paul Atkins has expressed concerns about this trend and indicated that it is a priority for the SEC under his leadership to “de-politicize shareholder meetings and return their focus to voting on director elections and significant corporate matters.”[3] As a result, “Shareholder Proposal Modernization” is one of the items on the SEC’s current regulatory agenda, signaling that the SEC is likely to propose changes to Rule 14a-8 in the near future.

SEC Guidance on Rule 14a-8 Process: No More No-Action Requests (With One Exception)

In November 2025, the SEC announced that it will not provide no-action relief to companies seeking to exclude shareholder proposals during the 2025-2026 proxy season, with the exception of no-action requests based on Rule 14a-8(i)(1), impropriety under state law. While companies still must provide timely notice to the SEC and proponents announcing their intent to exclude a shareholder proposal based on other grounds, they will not receive a response from the SEC granting no‑action relief. Instead, if a company (or its counsel) indicates it has a reasonable basis to exclude the proposal in its notice, the SEC will respond with a “no objection” letter based solely on that representation. This notice-only option has always been available to companies, but rarely used. The new process places the onus on companies to assess proposal eligibility and to consider the potential impacts of exclusion but, at the same time, gives companies greater control over the ability to exclude shareholder proposals.

Other SEC Developments Impacting Companies’ Shareholder Engagement Practices

Proxy Advisors Under Increased Scrutiny

A White House executive order issued on December 11, 2025 raised the magnifying glass on proxy advisory firms like ISS and Glass Lewis, calling on the SEC to “review all rules, regulations, guidance, bulletins, and memoranda relating to proxy advisors.” The executive order cites shareholder proposals, board composition, and executive compensation as examples through which, “proxy advisors regularly use their substantial power to advance and prioritize radical politically-motivated agendas — like ‘diversity, equity, and inclusion’ and ‘environmental, social, and governance’ — even though investor returns should be the only priority.” It remains to be seen how the SEC will respond to this executive order, but there is a possibility that in the future proxy advisors may have less influence on environmental and social shareholder proposal topics. With proxy advisory firms under scrutiny, private actors may be more apt to take voting recommendations into their own hands. As a result, market participants may increasingly seek alternatives to traditional proxy advisory firm recommendations, including investor-directed voting frameworks and technology-enabled decision-making tools. Against this backdrop, AI and related technologies may increasingly be viewed as tools that could supplement traditional proxy voting and stewardship processes. During a January 8, 2026 speech, the SEC’s Director of the Division of Investment Management Brian Daly expressed that “AI tools like large language models and agentic AI offer a compelling opportunity.” Mr. Daly explained that AI agents could “generate a large quantity of principled voting recommendations” at low cost, with the caveat that such tools can be valuable to enhance, not replace human judgment.

Increased Vote No / Withhold Campaigns

One shareholder tactic that gained popularity in 2025 is the rise of vote no / withhold campaigns on director elections and management proposals. While traditionally used by activists as a cost‑effective way to express disapproval with a company, these campaigns can prompt director resignations, portend a future activist campaign, or send a credible signal for change at the target company. In this way, vote no / withhold campaigns serve as an alternative to a full-blown proxy fight. If companies increasingly exclude shareholder proposals as a result of the recent limits on no-action relief, then this strategy of vote no / withhold campaigns could become more widely used by shareholder proponents as a means of registering dissatisfaction with company governance, strategy or business practices. Additionally, shareholder proponents may target key committee leaders (e.g., a Nominating/Governance Committee Chair) who could be perceived as responsible for the exclusion of a shareholder proposal.

Creation of Retail Voting Programs: The Everlasting Proxy

Another notable development in 2025 was the implementation of (and subsequent SEC no-action relief for) a novel retail voting program. This program allows retail shareholders, who have been historically more disengaged in voting matters at most companies, to systematize their preferences through a standing instruction that authorizes a company to automatically vote their shares with the recommendations of its board unless instructed otherwise. Companies with large retail shareholder bases may proactively implement such programs to solidify the benefits of a newly participating voting bloc. It is uncertain whether such programs will become commonplace, however, as it will take time to scale these programs and overcome the initial logistical hurdles and litigation risks. These programs may not be worthwhile for smaller companies or those with frequent retail investor turnover. Moreover, the views of institutional investors and proxy advisors on retail voting programs remain unclear. If such programs do however proliferate in future proxy seasons, it may result in a higher percentage of retail voting in line with management on shareholder proposals.

Updated Guidance on Beneficial Ownership Reporting

In February 2025, the staff of the SEC’s Division of Corporation Finance issued updated guidance on beneficial ownership reporting that has altered the Schedule 13D and Schedule 13G regimes for shareholders holding more than 5% of a given security. Under the new guidance, historically routine shareholder engagement activities may disqualify a shareholder from filing a Schedule 13G. As a result of the new guidance, some institutional investors are taking a more passive approach to engagement discussions, including by issuing disclaimers at the beginning of meetings and adopting a “sit and listen” approach. Because many large passive shareholders want to maintain their Schedule 13G filing status, the practical impact could be reduced engagement with companies regarding how they intend to vote on certain proposals. Accordingly, companies have an increased burden in navigating their relationships with large passive shareholders, including determining the appropriate scope and framing of questions in order to elicit insight that such shareholders historically freely shared.

Large passive shareholders’ reduced willingness to express their policy preferences to management, when combined with the SEC’s unwillingness to issue Rule 14a-8 no-action relief on shareholder proposals, raises the stakes for companies’ decisions on how to best engage with shareholders.

Conclusion

Taken together, these recent SEC actions and market developments point to a potential reordering of how shareholder engagement is conducted, with the pendulum shifting away from a shareholder engagement model mediated by regulatory processes and institutional intermediaries and towards one in which companies exercise greater discretion (and bear greater responsibility) for engagement outcomes.

Companies are facing the challenge of exercising pragmatic judgment under complex circumstances when addressing shareholder engagement. Shareholder influence may be less likely to be expressed through routine engagement or negotiated outcomes around proposal inclusion that were historically shaped by the prospect of no-action relief, and more likely to surface through voting outcomes themselves, including vote no / withhold campaigns that directly target director accountability. To the extent these mechanisms function as substitutes for the shareholder proposal process, companies may encounter fewer opportunities for early, bilateral engagement and heightened pressure at the ballot box.

In this environment, effective shareholder engagement requires more than procedural compliance. Companies will need to exercise informed judgment, grounded in a clear understanding of their shareholder base, the motivations underlying shareholder actions, and their own tolerance for engagement-related risk. Those that proactively assess these factors will be better positioned to navigate a proxy landscape defined less by regulatory process and more by outcome-driven accountability.