A recent Wilson Sonsini memo offers advice for boards and management on best practices for shareholder engagement and dealing with shareholder activism. Here’s an excerpt from the memo’s discussion of how to conduct a meeting with investors:
The company’s representatives should conduct the meeting and drive the discussion. Shareholders want to engage directly with the decisionmakers, so top management or a board member should be the company’s primary speakers. Throughout the meeting, the company will want to show that its participants have a strong command of the issues facing the company.
Although not mandatory, executives generally engage most in discussions related to their functional areas. For example, the CEO would concentrate on questions and discussion related to strategy and “big picture” items, the CFO would focus on financials, and the General Counsel would focus on governance. Throughout the meeting, it is important for the company’s participants to demonstrate competence, alignment, and engagement.
Approach the meeting as a discussion and not a negotiation. This means listening actively and soliciting feedback, and not being dismissive, defensive, or confrontational. It is natural for there to be issues on which the company and the shareholder disagree, but the company’s focus in the meeting should not be on trying to change the shareholder’s mind. Rather, the goal is to clearly and unemotionally communicate the company’s position, reasoning, and value creation strategy while also building credibility with shareholders.
Other engagement-related topics addressed by the memo include when to engage with shareholders, whether to engage with known activists, how to prepare for a meeting with shareholders, what legal issues to keep in mind, and what to do after engagement.
Trendsetters: The number of all S&P 500 companies scoring 90 percent or above for political disclosure and accountability was 112, an increase over last year’s 103, and comprising more than 22 percent of all S&P 500 companies evaluated. The number of Trendsetters now has increased fourfold from the 28 companies that received scores of 90 percent or higher in 2015. Among the 318 companies belonging to the so-called core S&P 500, those constant in the Index since 2015, there are 92 Trendsetters this year.
Top-Tier Milestones: 205 companies in the overall S&P 500 placed in the first Index tier (scoring from 80 percent to 100 percent). This is more than double the 76 top-tier companies in 2015. It is one company fewer than last year. Among core S&P 500 companies, 164 companies – over half of all core S&P 500 companies – placed in this year’s top tier. Four fewer core companies scored in the top tier in 2024.
Shrinking Bottom Tier: The number of S&P 500 companies scoring lowest for disclosure and accountability – in the bottom 20 percent – has continued to decline. From 204 bottom-tiercompanies in 2015 it has dropped to 88 this year.
CPA-Zicklin found that 328 members of the S&P 500 had general board oversight of their political spending, up from 319 last year, and that 291 S&P 500 companies have board committee review of direct political contributions and expenditures, up from 282 last year and 168 in 2015.
Companies have had a lot to say about tariffs this year, and with good reason. The president’s “Liberation Day” announcement shook financial markets and left many companies scrambling to determine what this dramatic change in US global trade policy would mean for them – and how to communicate that information to investors. So, it may come as a surprise to learn that, according to FactSet, companies are talking a lot less about tariffs in their 3rd quarter earnings calls than they did in their 1st and 2nd quarter calls:
Given concerns in the market about tariffs, did more S&P 500 companies comment on tariffs during their earnings conference calls for the third quarter compared to the second quarter?
The answer is no. FactSet Document Search (which allows users to search for key words or phrases across multiple document types) was used to answer this question. Through Document Search, FactSet searched for the term “tariff” or “tariffs” in the conference call transcripts of all the S&P 500 companies that conducted earnings conference calls from September 15 through November 14.
Overall, the term “tariff” or “tariffs” was cited on 238 earnings calls conducted by S&P 500 companies during this period. This number reflects a quarter-over-quarter decline of 33% compared to Q2 2025, when the term “tariff” or “tariffs” was cited on 357 earnings calls (from June 15 through September 14). This is also the second straight quarter where the number of earnings calls citing the term “tariff” or “tariffs” has decreased.
For reference purposes, FactSet says that 452 S&P 500 companies mentioned tariffs in the Q1 earnings calls.
To a certain extent, this decline likely reflects the fact that many companies have been pretty transparent with their prior disclosures about the impact of tariffs and simply don’t have much more to add. On the other hand, they’re still saying quite a bit about this topic compared to prior years. According to FactSet, the mentions in Q3 earnings calls are still the fourth highest on record.
The Trump administration plainly has the proxy advisor industry in its crosshairs, but what exactly might it do to squeeze the industry beyond issuing the executive orders the president is reported to be contemplating? Over on The Business Law Prof Blog, Prof. Ann Lipton has some thoughts on that topic.
Ann notes that the SEC could classify proxy advice as investment advice and try to make proxy advisors jump through additional regulatory hoops under the Investment Advisors Act, but she points out that the courts haven’t supported recent efforts by the SEC to add burdensome regulatory obligations under that statute. However, she says that there are other options available:
The SEC (and the Department of Labor, which regulates private pension funds) could come at this from the client side. Institutional investors rely on proxy advisers to satisfy their own fiduciary obligations to vote their shares in their beneficiaries’ best interest, and they are able to do that because of prior guidance by both the SEC and the DoL permitting it.
During Trump I, there were some attempts to burden institutional investors’ ability to rely on proxy voting advice. For one, the SEC withdrew some letters it had issued about how to deal with investment advisers who have conflicts of interest, though, as I blogged at the time, the import of that action was unclear.
Later, the Department of Labor proposed to, essentially, overburden pension plan voting policies to the point of making votes virtually impossible to cast cost effectively – unless the plan developed a blanket policy in favor of voting with management (which, of course, gives away the game about what’s really motivating these attacks on shareholder voting).
That proposal was substantially watered down, but the outlines demonstrate what’s within the realm of the possible today. Both agencies could withdraw prior guidance and interpretations that permit reliance on proxy advisors, or, at the very least, make reliance on proxy voting advice very difficult from an administrative point of view.
I know that the prospect of ISS and Glass Lewis crying tears of unfathomable sadness won’t break the hearts of many of our readers, but everyone should keep in mind my Sideshow Bob quote from earlier this week. The more the pendulum swings in one direction now, the more it’s going to swing in the other when there’s a change in regimes.
Cooley recently published its inaugural “Post IPO Governance Report,” which analyzes more than 225 US IPOs from 2017 through 2021 in order to explore how their governance structures evolved during the first years after an IPO. The report looks at governance structures, voting matters, board and leadership changes, and governance and compensation practices. Here’s an excerpt from the report’s discussion of classified board practices:
Classified boards are a defining feature of recent IPO governance, with approximately 88% of the IPO Companies adopting a classified board structure at the time of IPO. While this structure is prevalent across industries, notable variation exists. For example, classified boards are nearly universal among life sciences companies (97%), while about one-fifth of services and retail companies went public with a single class of directors.
Classified boards were more common among noncontrolled companies (91%) than controlled companies (83%), suggesting the structure is viewed as a stabilizing mechanism in the absence of a controlling shareholder. Controlling founders or sponsors, meanwhile, may rely on it less to safeguard control.
Prevalence was also higher among PE- and VC-backed companies (95% and 90%, respectively), reflecting lower sensitivity among these financial sponsors to governance features, such as classified boards, that are often viewed less favorably by institutional investors and proxy advisors.
The report says that classified boards remain the dominant structure for the post-IPO companies, but notes that approximately 10% of the companies that went public with a classified board during the relevant period have opted to declassify. It also says that declassification generally resulted from institutional investor or proxy advisor pressure and is more common among larger companies and those in retail and other consumer-facing industries. Of the 15 companies that have declassified their boards, 12 did so through a management proposal, while the remainder declassified through sunset provisions built into charter documents.
Although institutional investors have become somewhat less hostile toward the concept of dual class capital structures among newly public companies, they usually want to see some sort of sunset provisions baked into corporate charters that will cause the dual class structure to fall away after a period of time.
According to this white paper from Minerva Analytics, most companies with dual class share structures (DCSS) include some kind of sunset provision in their charter, but those usually don’t include the kind of sunset terms that investors prefer. This excerpt summarizes Minerva’s findings:
Of the 259 US companies in Minerva’s coverage with capital structures with DCSS, almost four-fifths have at least one sunset provision in their governing documents – reflecting the growing incentive to transition to the one share, one vote structure. Only 24 companies have adopted time-based sunset provisions, of which six are compliant with the CII recommendation that sunset provisions are triggered within seven years. The remaining 28 companies’ provisions trigger in eight to 50 years.
Dilution-based sunset provisions have been adopted by 120 companies. Time- and dilution-based provisions are generally considered the most effective types of sunset provisions. This is because they provide clear and enforceable triggers that cannot be avoided to protect controlling shareholders. This means that once these provisions are triggered, they ensure automatic conversion to a single class of shares with one vote per share and is particularly the case for time-based provisions.
The white paper says that more than 40% of US technology IPOs retain dual class structures, while just 7% of Russell 3000 companies have them.
Last month, I blogged about White & Case’s report on the terms of publicly filed insider trading policies. Wilson Sonsini recently reviewed the terms of insider trading policies adopted by a particular subgroup of those companies – the SV 150. Here are some of their key findings:
Broad applicability of policies: Insider trading policies generally apply broadly to all directors, officers, employees, and other service providers, with 88 percent of the policies reviewed covering the foregoing persons and their affiliates. The list of persons subject to quarterly blackout periods and pre-clearance requirements is often narrowed to directors, officers, and a specified subset of employees or other service providers.
Quarterly blackout periods: Most of the insider trading policies reviewed impose quarterly blackout periods that commence two to four weeks before the then-current fiscal quarter-end (with two weeks being the most common timing), and end one or two trading days following the public release of quarterly earnings. Ten of the SV150 companies impose a longer quarterly blackout period for directors and senior-level employees, and a shorter quarterly blackout period for other employees and service providers.
Pre-clearance requirements: Most of the insider trading policies reviewed require certain insiders to obtain pre-clearance before trading even in an open trading window. Pre-clearance requirements are often limited to directors, officers, and employees with access to material nonpublic information (MNPI).
Treatment of gifts: Recent amendments to SEC rules require reporting of gifts by Section 16 filers on the same basis as open market sales and other disposition transactions, likely leading some companies to adjust policies with respect to gifts. Among the insider trading policies reviewed, most provide some restrictions on gifts and charitable contributions of securities, but approaches vary.
Restricted activities: hedging, pledging, and margin accounts: Nearly all insider trading policies prohibit hedging transactions involving company securities. Approximately 43 percent of insider trading policies permit pledging of company stock, with prior approval and/or only by certain company insiders, but only 27 percent of insider trading policies allow margin accounts, with similar approval and limitation structures.
I admit that I haven’t pored over the details of Wilson Sonsini’s findings, but at a glance it doesn’t seem that there’s much that differentiates the way that the SV 150 have approached their insider trading policies from the approach taken by public companies in other industries. That being said, White & Case did find that 20% of public company policies addressed shadow trading. Since Wilson Sonsini’s report didn’t mention the topic, perhaps this is an area where SV 150 companies are somewhat less restrictive than some of their more conservative counterparts in the broader public company group.
We cover the Delaware Chancery Court all the time over on DealLawyers.com, but we don’t feature its decisions very often on this blog. I’m making an exception today though, because although the Chancery Court didn’t issue any groundbreaking corporate law decisions last week, it did issue a pair of opinions that I can’t resist mentioning here.
The first, Renovaro v. Grumrucku, involved fraud claims arising out of a merger. Cases involving fraud allegations are never pretty, but as the first paragraph of Vice Chancellor Zurn’s opinion demonstrates, this one took a particularly dark turn:
Serhat Gumrukcu was in a bind. He was about to close a transaction in which he would sell lies, about himself and medical advancements he had purportedly developed, for millions of dollars. But Greg Davis, who Gumrukcu had defrauded in a previous scheme, was threatening to go to the authorities. Gumrukcu was afraid that would jeopardize the sale. He had Davis killed.
It’s not often that you see a Chancery Court opinion turn into a script for a Coen Bros. movie in less than a paragraph, but there you have it. Although on second thought, maybe I should’ve said a script for a Roman Polanski movie, because Bloomberg’s Mike Leonard won the Internet when he posted an excerpt from the case on LinkedIn accompanied by the following one-sentence intro:
Forget it Jake, it’s Chancery.
On Friday, Vice Chancellor David issued her opinion in Callahan v. Nelson, a less dark but no less compelling case involving a couple who purchased a trendydoodle goldendoodle named Tucker and have engaged in a multi-year custody battle over the pup ever since they parted company. That dispute ended up in Chancery Court, and Vice Chancellor David’s 17-page opinion kicks off with a quote from Rudyard Kipling’s “The Power of a Dog” & includes a footnote finding that “it is undisputed that Tucker is a very good boy.” Check it out if you’re looking for a distraction today.
You may wonder how a Court that spends the vast majority of its time dealing with complex corporate disputes end up deciding who gets custody of a dog. Well, the short answer is that pets are legally considered property in Delaware, and the Chancery Court has jurisdiction over equitable matters involving property ownership.
After a week like this, I guess the only thing left to say is – Texas and Nevada, the ball’s in your court!
Yesterday, the Division of Corporation Finance issued a statement indicating that, except for no-action letters seeking to exclude shareholder proposals under Rule 14a-8(i)(1), it’s out of the Rule 14a-8 no-action letter business for the remainder of 2025 and 2026. This excerpt summarizes Corp Fin’s action and reminds issuers of their continuing notice obligations:
The Division of Corporation Finance has thoroughly considered its role in the Rule 14a-8 process for the 2025-2026 proxy season. Due to current resource and timing considerations following the lengthy government shutdown and the large volume of registration statements and other filings requiring prompt staff attention, as well as the extensive body of guidance from the Commission and the staff available to both companies and proponents, the Division has determined to not respond to no-action requests for, and express no views on, companies’ intended reliance on any basis for exclusion of shareholder proposals under Rule 14a-8, other than no-action requests to exclude a proposal under Rule 14a-8(i)(1).
Pursuant to Rule 14a-8(j), companies that intend to exclude shareholder proposals from their proxy materials must still notify the Commission and proponents no later than 80 calendar days before filing a definitive proxy statement. We remind companies and proponents, however, that this requirement is informational only, there is no requirement that companies seek the staff’s views regarding their intended exclusion of a proposal, and no response from the staff is required.
In light of recent developments regarding the application of state law and Rule 14a-8(i)(1) to precatory proposals, the Division has determined that there is not a sufficient body of applicable guidance for companies and proponents to rely on. As such, the Division will continue to review and express its views on no-action requests related to Rule 14a-8(i)(1) until such time as it determines there is sufficient guidance available to assist companies and proponents in their decision-making process.
Corp Fin’s willingness to have the Staff continue to referee disputes over whether precatory proposals are excludable should be read in the context of Chairman Atkins’ remarks last month indicating the Staff’s readiness to entertain arguments that such proposals are excludable under Rule 14a-8(i)(1) as not being proper subjects for shareholder action under state law.
Corp Fin’s statement applies to the current proxy season (October 1, 2025 – September 30, 2026) as well as no-action requests received before October 1, 2025 that haven’t yet been responded to by the Staff.
Although no-action letters are mostly off the table for now, the statement provides that if a company wants to receive a response from the Staff about its exclusion of a proposal, it may include, as part of the required notification, “an unqualified representation that the company has a reasonable basis to exclude the proposal based on the provisions of Rule 14a-8, prior published guidance, and/or judicial decisions.” Companies that follow this procedure will receive a response from Corp Fin to the effect that based solely on that representation, the Division won’t object if the company omits the proposal from its proxy materials.
Commissioner Crenshaw issued her own statement on Corp Fin’s action, and it probably won’t surprise you to find that she’s doesn’t find much to like in it:
Today’s Announcement is a Trojan horse. It cloaks itself in neutrality by expressing that the Division will not weigh in on any company’s exclusion of shareholder proposals, but then it hands companies a hall pass to do whatever they want. It effectively creates unqualified permission for companies to silence investor voices (with “no objection” from the Commission). This is the latest in a parade of actions by this Commission that will ring the death knell for corporate governance and shareholder democracy, deny voice to the equity owners of corporations, and elevate management to untouchable status. In a neutral way, of course.
I’ve got to admit that I’m still processing this blockbuster, and at this point the first response that comes to mind is “Holy Smokes!” This is a huge change, and it’s likely to have some pretty profound implications for the shareholder proposal process. I’ll speculate about some of what those implications might be in the next blog.
As I understand it, the SEC has been in the Rule 14a-8 no-action letter business since shortly after the rule was adopted in 1942, so we are entering truly uncharted territory. What will the SEC’s decision to retreat from its historical role as Rule 14a-8’s referee mean for public companies and shareholder proponents? Nobody knows for sure, but here’s my two cents on some of the potential implications:
Will we see more shareholder proposals excluded? Yes, but maybe not to the extent that some might expect. With the benefit of favorable recent guidance like SLB 14M and without the prospect of the Staff looking over their shoulder, companies may be inclined to take a more aggressive approach to excluding proposals than in years past. That being said, decisions to exclude proposals won’t be made in a vacuum.
Companies will need to consider how key investors or other constituencies may respond if they are perceived as acting too aggressively to “silence” shareholders. The facts and circumstances surrounding a particular proposal may also enter into the equation. For example, when dealing with proposals that have the backing of well-financed proponents but that aren’t likely to get much support (like anti-ESG proposals), companies may also decide that fighting their inclusion may not be worth the headaches associated with excluding them.
Will companies seek Corp Fin’s sign-off on exclusions? Corp Fin’s statement outlines a process by which companies can obtain some cold comfort from the Staff about their decision to exclude a proposal. Despite Commissioner Crenshaw’s characterization of this process as a “hall pass” permitting companies to exclude shareholder proposals, my guess is that companies may be hesitant to put themselves in the position of making the representation required to obtain this assurance unless the precedent they’re relying upon is bullet-proof. Some decisions might fall into that category, but if you’re dealing with a sophisticated proponent, you may not find a lot of bullet-proof precedent permitting you to exclude that shareholder’s proposal.
I think in many cases that don’t involve the proverbial “no brainer,” a company that excludes a proposal may opt to do so without going through this cold comfort process. I know I’d rather defend a good faith judgment about excludability after the fact than have to deal with a situation where an unqualified representation made to the SEC that “there’s nothing to see here” is being challenged.
Will we see more Rule 14a-8 litigation? From time-to-time, issuers have bypassed the no-action process and filed lawsuits seeking declaratory relief permitting them to exclude a proposal under Rule 14a-8. Will the SEC’s withdrawal from the playing field result in more suits like these? My guess is that we’re unlikely to see much of this kind of litigation. These lawsuits were filed to avoid the Rule 14a-8 no-action process, and there’s less reason to pursue this strategy if that process is unavailable. Of course, it’s still available in the case of precatory proposals sought to be excluded under Rule 14(a)(8)(i)(1), so I suppose a company that may not be able to provide the kind of opinion the Staff is looking for to exclude that proposal through the no-action process might consider litigation as an alternative.
What about proponents – will they take companies to court to force inclusion? That seems unlikely in most cases not involving well-financed activist hedge funds (who typically aren’t big users of Rule 14a-8 anyway) and some deep-pocketed members of the anti-ESG crowd. For the most part, the shareholder proposal process has given gadflies & NGOs with limited funding the ability to get proposals on corporate proxy cards relatively inexpensively, and many of those proponents simply don’t have the financial resources to litigate a company’s decision to exclude a proposal.
Will we see more unorthodox strategies from proponents? I think that’s a sure thing. To quote from Virgil’s Aeneid, “If I cannot move heaven, I will raise hell.” With the Rule 14a-8 process substantially crimped, it seems inevitable that shareholder proponents will turn to alternative ways of getting their messages across.
In the case of sophisticated investors, these might include withhold vote campaigns targeted at chairs of board committees responsible for areas of concern to a proponent. (John Chevedden recently did this at Microsoft after it excluded his proposal). Withhold vote campaigns may be conducted as exempt solicitations, but perhaps we’ll also finally see a few inexpensive “nominal solication” campaigns under the universal proxy rules. We may even see a rise in innovative Rule 14a-8 workarounds, like the “zero slate” campaign first waged by the United Mine Workers in 2024.
Now also might be a good time to dust off your copies of Saul Alinsky’s Rules for Radicals, because companies should probably prepare for a little old fashioned “hell raising.” Along those lines, proponents who feel that they were denied a voice through the Rule 14a-8 process may be inclined to deliver their message through floor proposals at shareholders’ meetings, or through protests at or other disruptions of those meetings or other investor events. I’d also be on the lookout for increased use of social media campaigns targeting company policies and board members.
I’m sure there are a dozen other potential implications of Corp Fin’s decision that I haven’t addressed, including the biggest question of all – is this the beginning of the end for shareholder proposals?
Well, maybe. While we hopefully won’t be dealing with the fallout from another shutdown, the SEC’s staffing constraints are unlikely to improve much over the course of the next several years, so it wouldn’t surprise me at all if its withdrawal from the no-action process extends beyond 2026. Moreover, if the precatory proposals citadel falls, there isn’t going to be a whole lot left to fight about.
On the other hand, in the immortal words of Sideshow Bob, “You can’t keep the Democrats out of the White House forever!” So, whatever happens over the course of the next few years, we’re unlikely to let our Shareholder Proposals Handbook go out of print.
