August 28, 2025 Observations from the 2025 Proxy Season

Changes Observed in Shareholder Engagement

• Early in the 2025 proxy season, a notable recalibration of investor engagement strategies occurred, largely driven by new guidance from the Securities and Exchange Commission (SEC). Specifically, updated interpretive guidance on Regulation 13D/13G beneficial ownership reporting prompted many large institutional investors to adopt a more cautious approach to engagement. This guidance appeared to broaden the activities that could be deemed as “influencing control” over an issuer, potentially triggering the more stringent Schedule 13D filing requirements, even for traditionally passive investors.

• As a result, some major institutional investors chose to pause or significantly reduce their proactive engagement meetings with companies, particularly in the lead-up to annual shareholder meetings. This shift created a challenging environment for companies seeking direct feedback from their largest shareholders, leading to what some have termed “quiet diplomacy.” While investors continued to exercise their voting power, the nature of pre-vote discussions became more reserved, pushing the emphasis of investor influence more directly to the ballot box itself. Companies were tasked with proactively analyzing investor stewardship policies and communicating through formal disclosures rather than relying on extensive direct dialogue. In the event Companies did engage with these investors during the solicitation period, companies had to be prepared to proactively discuss and bring up topics that the impacted investors would have traditionally raised themselves.  In some cases, the engagements ended up being more one-sided with limited proactive participation from these major investors.

Executive Compensation Trends

• While reported executive compensation again increased year over year, there were limited material changes to aggregate voting results. Further, the issues driving lower vote support largely remained the same (e.g., special one-time awards / mega grants, perceptions around the rigor of performance goals, concerns around severance and new hire payments, and general underperformance on the proxy advisory pay for performance tests). Of note, ISS increased its emphasis on the rigor of performance goals when there was an elevated level of concern on their quantitative pay for performance tests. Companies that did not provide details on or adequately communicate the rigor of these goals were at increased risk of receiving an against recommendation this year. 

• The shifts in shareholder engagement may also have significant implications for executive compensation programs in 2026. Specifically, due to the aforementioned updated interpretive guidance on Regulation 13D/13G beneficial ownership reporting, certain investors may be unwilling to provide explicit feedback on executive compensation programs.  When a company’s Say on Pay proposal passes but falls below certain thresholds (e.g., falling below 80% for Glass Lewis and 70% for ISS), it may trigger “responsiveness” policies. This would traditionally require the company to engage with its investors about executive compensation and disclose what it heard and how it responded to the feedback. If top holders are unable to provide explicit feedback, this may make it more difficult for companies to align with these traditional expectations and have productive engagements. This may result in an increased reliance on proxy advisory reports and/or feedback from investors with smaller ownership positions.

Reconsideration of Disclosure Practices: Influence of The ESG/DEI Backlash

• The 2025 proxy season reflected a significant reconsideration of corporate disclosure practices, particularly concerning ESG and DEI matters. Shifts in SEC guidance and a January 2025 presidential executive order prompted proxy advisors and shareholders to reconsider their voting policies. In response, ISS and several major institutional investors announced they would indefinitely suspend consideration of gender, racial and ethnic diversity factors when voting on director elections.

• In response to legal challenges and political pressure surrounding affirmative action and DEI programs, many companies became more cautious about the level of detail provided in their DEI disclosures. This response included significantly revising or removing DEI-related content from SEC filings such as Form 10-Ks. For example, some companies reduced the word count of DEI sections, eliminated explicit mentions of identity groups, or rebranded terms like “Diversity, Equity, and Inclusion” as “Workforce Composition.”

Many companies that completely removed DEI disclosures on topics such as board diversity in their proxies faced opposition from Glass Lewis and some shareholders, however the impact of this opposition was limited.  Overall, the pressure on diversity disclosure appears to have waned, as evidenced by the overall decline in median support for E&S shareholder proposals.