Evolving rules on proxy advisors, engagements and proposals shake up 2026 proxy season playbook 

November 21, 2025

Companies, proxy advisors and investors are navigating the upcoming proxy season amid a shifting regulatory landscape that includes new SEC guidance, Federal Trade Commission (FTC) investigations, conflicting state laws, and potential SEC rules and executive orders. In many cases, these actions target environmental, social and governance (ESG) and diversity, equity and inclusion (DEI). This article covers the impact on companies, proxy advisors and investors of legal and regulatory actions related to the following: proxy advisor influence; investor stewardship; shareholder engagements; and the shareholder proposal process. In many cases the developments are a double-edged sword; for example, they offer companies more flexibility but they’re likely to inject more uncertainty into the proxy season ― requiring companies to adjust their proxy season playbook. 

SEC guidance issued in July on “passive” versus “active” investor status has made investors more reticent when they engage with companies on pay programs and shareholder proposals.

SEC guidance

Under staff guidance, 5% shareholders can lose their status as “passive” vs “active” investors if they “exert pressure” on management to make specific changes to, among other things, executive pay or a social, environmental or political policy, or if they indicate that support for director nominees will be withheld unless the company makes changes the investor desires. Passive investors report their holdings on a short-form Schedule 13G, while active investors must report their holdings on the more onerous Schedule 13D. Prior to the guidance, it was commonly understood that engagement on compensation, ESG and DEI matters wouldn’t cause investors to be viewed as active.

Implications for companies

Law firms have generally concluded that the following activities shouldn’t present significant risk to investors under the guidance: engagement on non-binding proposals like SOP and responding to company-initiated inquiries regarding the investors’ views on particular issues (rather than raising the issue on their own). But assuming investors won’t take the initiative, companies must be more proactive in requesting engagements and asking questions on key topics during those engagements. Finally, investors are unlikely to disclose their voting intentions, which could lead to unexpected negative votes on director elections, SOP, etc. 

Recognizing that investors have different priorities, particularly on ESG and DEI matters, several large fund managers are restructuring their proxy voting operations and some are introducing investor choice programs. These changes may make it harder for companies to anticipate voting results.

Business model changes

Large fund managers have stewardship teams that vote on behalf of fund investors. This year, BlackRock, Vanguard and State Street have been dividing their investment stewardship functions into two separate teams, each governed by distinct decision-makers, policies, and methodologies that could accommodate differing priorities on issues such as ESG. BlackRock’s stewardship group has been divided into BlackRock Investment Stewardship for index portfolios and BlackRock Active Investment Stewardship for active investment teams. State Street has split its governance work into a core Asset Stewardship Team and a new Sustainability Stewardship Service for investors who prioritize sustainability across four areas, climate change, nature, human rights and diversity. Vanguard is expected to split funds between Vanguard Capital Management and Vanguard Portfolio Management in 2026. It’s not clear how the two divisions’ voting policies will differ, at least at the beginning.

In addition, for clients directing their own votes, the fund managers have launched “voting choice” or pass-through voting programs that enable investors to choose among multiple voting policies, including those from third-party advisors like ISS or Glass Lewis, or to specify their own voting preferences.

Executive orders

The administration is considering an executive order that would limit how index fund managers like Blackrock, Vanguard and State Street are allowed to vote, according to the WSJ. The order would require them to mirror their votes in line with clients who choose to vote (i.e., vote shares that beneficial owners haven’t voted in the same proportion as the votes of beneficial owners that did vote).

Implications for companies

Overlapping investor policies and internal stewardship divisions will inject more uncertainty into the proxy season, requiring companies to engage with multiple teams at each fund manager. As with the changes to proxy advisor business models, this could be particularly significant for companies facing an activist investor. 

Companies must include shareholder proposals in their proxy statement if the proposals comply with the procedural and eligibility requirements of SEC Rule 14a-8, unless a proposal is excludable on one of 13 substantive bases. The SEC is planning to modernize the rule and has already begun updating its guidance. In addition, it’s supporting state efforts to regulate the process.

SEC activity

According to the SEC’s regulatory agenda, the agency will propose rule changes by April 2026. This might include raising the eligibility thresholds, which currently allow investors holding shares worth $2,000 for at least three years to submit proposals. While the rulemaking process will take time to play out, the agency has already taken several concrete actions that make it easier for companies to exclude proposals:

• Staff guidance. Staff guidance issued in February makes it easier for companies to exclude proposals with societal impact that, among other things, don’t have economic relevance to the company’s business. The guidance states the SEC staff will consider case by case whether a proposal is otherwise significantly related to a particular company’s business or focuses on a significant policy issue that has a sufficient nexus to a particular company. The guidance should give companies and their law firms confidence in excluding ESG and DEI proposals.
• Recent announcement. Before excluding a proposal, companies have historically sought “no-action” relief from the SEC. But the SEC announced in November it will allow companies to exclude proposals without receiving a no-action letter. The staff noted this decision was in part due to current resource and timing considerations following the lengthy government shutdown and the large volume of registration statements and other filings requiring staff attention. The announcement applies to the current proxy season (October 1, 2025 – September 30, 2026) and no-action requests received before October 1, 2025 to which the Division has not yet responded. As has always been the case, companies must still notify (for informational purposes only) the SEC and the proposal proponent at least 80 calendar days before filing the definitive proxy statement if they plan to exclude a proposal and its grounds for exclusion. Of note, a footnote says companies can still form a reasonable basis to exclude a proposal even if the SEC denied no-action relief to the same or a similar proposal in the past. If a company wants an acknowledgment letter from SEC staff and submits certain information to the SEC, the staff will send a non-objection letter, without assessing the merits of the exclusion. The announcement doesn’t apply if a company is seeking to exclude a proposal because it’s not a proper subject under federal or state law.

State activity

In a recent speech, SEC Chair Atkins indicated the SEC will support a larger role for the states in regulating the shareholder proposal process, with specific comments about Texas and Delaware laws:

• Texas. A new state law places ownership and procedural conditions on the ability to introduce a shareholder proposal. Atkins stated the SEC would respect Texas corporations that opt into a recent state law provision.
• Delaware. Atkins encouraged Delaware corporations to question whether shareholders have the right to introduce nonbinding shareholder proposals under Delaware law and indicated the SEC would honor a legal opinion that a proposal is not a proper subject for shareholder action.

Implications for companies

Companies will see fewer shareholder proposals and have an easier time excluding the ones they receive, particularly those related to ESG and DEI. But they need to consider the risks: the SEC might disagree with a company’s basis for exclusion and bring an enforcement action; proponents might bring a lawsuit to get a proposal included; and investors might employ more aggressive tactics to express their concerns. Tactics could include voting against board members, submitting binding proposals, seeking bylaw amendments, bringing floor proposals at meetings or engaging in “vote-no” or social media campaigns.

In a vote-no campaign, shareholders are urged to vote against, or abstain from voting for, directors. It can be a powerful tool, particularly against companies with a policy that requires directors to tender their resignation if they fail to receive a majority of votes. According to data from Diligent, an AI platform for governance, risk and compliance cited in The Informed Board, vote no campaigns were up about 40% from 2024 to 2025 for the 12-month periods ending in June.

These proxy season developments present both opportunities and challenges for companies. They are likely to result in proxy advisors wielding less influence, shareholders submitting fewer proposals, and more companies excluding shareholder proposals. But companies will no longer be able to rely on proxy advisor benchmark policies in designing pay plans, SEC no-action letters in excluding shareholder proposals or historic shareholder voting patterns in securing shareholder support for SOP and other matters. Instead, it will be more important than ever to stay up to date on fast-changing investor voting policies and patterns, and proactively engage with them to understand their pay and governance priorities and concerns. Companies must be vigilant and agile as they prepare for a proxy season that is likely to be dynamic and unpredictable.

_{Note: Mercer is not engaged in the practice of law or accounting, and this content is not intended as a substitute for legal and accounting advice. Accordingly, you should secure the advice of competent legal counsel and accountants with respect to any legal or accounting matters related to this document.}