During a speech yesterday at the New York City Bar Association, Brian Daly, Director of the SEC’s Division of Investment Management, shared his thoughts on the proxy voting landscape (subject to the standard disclaimer). He starts by saying, “I often hear investment advisers say that they feel compelled to vote on matters they do not deem important to their investment programs and that they would welcome more clarity that they need not vote all proxies.”
Citing the 2003 adopting release for the SEC’s proxy voting rule and 2003 guidance on proxy voting considerations, he gives some examples of situations where he thinks not voting may make sense.
Look, for example, at quantitative and systematic managers, who often operate models that merely seek exposures to identified sources of alpha. Many investment advisers managing quantitative and systematic strategies will even say that voting on board members, management policies, or on precatory social and political matters is irrelevant to their strategy and imposes costs without conferring any measurable benefit to investors.
Many mutual funds and ETFs purport to track a reference index, and the core mandate for the investment adviser is to replicate the performance of the reference index in the fund. [I]t may be appropriate for these categories of investment advisers (and the Boards that exercise oversight over this function) to consider whether taking positions on fundamental corporate matters, or on precatory proposals, is consistent with their investment mandates.
Ultimately, he says, “it is important that advisers and clients have a fair amount of latitude to decide what works in their individual cases […] Investment advisers that determine proxy voting is not required by, or may even be inconsistent with, their investment program should not be afraid to take that position.” He does acknowledge the alarm going off in all our heads (what about quorums?!), noting “investment advisers to passive or systematic strategies may deem some kind of neutral (or neutral-ish) voting policy to be essential for quorum and similar reasons.”
In discussing how to vote, he concludes that determining the right amount of the process to delegate to proxy advisors is situationally dependent and should be determined between advisers and clients. But he cautions:
If an investment adviser routinely follows a proxy advisor’s stock recommendations without a tailored engagement or independent analysis, is this “reasonable inquiry?” Maybe, but it is certainly worth thinking about. And, to go back to the first question, if the voting process is so burdensome that it requires extensive external resources, why is the adviser voting at all?
But there are many others in the BIS content library and our “Investor Voting Policies” Practice Area. There are a number of changes to the Voting Guidelines worth noting, as this Cooley blog highlights. Some general commentary and global changes seem to be more confirmatory / semantics:
BIS explicitly affirms compliance with the SEC’s February 2025 guidance on Schedule 13G eligibility, stating that it does not engage with portfolio companies “for the purpose, or with the effect, of changing or influencing control of any company.”
“Generally, BIS supports the vote recommendations of boards and management at companies with sound corporate governance and that deliver strong financial returns over time.” BIS has replaced “vote against” with “not support” when describing potential voting actions and, in most cases, has shifted from normative to more neutral, factual language when characterizing company actions (e.g., changing “where the board has failed to facilitate …” to “where the board has not facilitated …”).
Other global changes seem to be more meaningful:
BIS has also updated language throughout its policy to emphasize its focus on “financial” value and performance (e.g., replacing “long-term shareholder value” with “long-term financial value” and noting there should be a clear link between exec pay and “operational and financial performance” rather than simply “company performance” which encompassed both financial and non-financial results in last year’s policy).
That said, the policies address stakeholder impact:
BIS may express concerns about board oversight of material risks related to key stakeholders (employees, business supply chains, clients and consumers, regulators, and the communities in which they operate) through director votes or shareholder proposal support where the board, in BIS’s assessment, is not acting in shareholders’ long-term financial interests.
Then there are some specific policy areas with new language.
The term “diversity” no longer appears in BIS’s policy, nor does the S&P 500 board diversity data that was included in last year’s policy. References to “diversity” have been replaced with language like “various experiences, perspectives, and skillsets,” and references to “professional and personal characteristics” have been replaced with “qualifications.”
BIS no longer asks companies to disclose their approach to DEI and workforce demographics. Instead, to understand a company’s approach to managing risks and opportunities associated with human capital, BIS wants disclosures on matters such as “workforce size, composition, compensation, engagement, turnover, training and development, working conditions and health, safety and wellbeing, among other possible topics.”
BIS notes that standardized disclosure of sustainability-related data “supports investors in making informed decisions,” highlighting ISSB standards, IFRS S1 and S2, as one approach to standardization it finds useful, but further notes that it does not mandate any specific disclosure framework companies should use.
BIS expanded its discussion of shareholder proposals, reaffirming its case-by-case analysis and providing further guidance on its approach, including that its analysis “considers whether a shareholder proposal addresses a material risk that may impact a company’s long-term financial performance,” that it does not support proposals it views as “inconsistent with long-term financial value or that seek to micromanage companies,” and that it considers the “legal effect” of the proposal (i.e., advisory vs. legally binding).
For updates on the compensation side of things, Liz covered those on CompensationStandards.com yesterday.
TL; DR: Despite many language changes, there aren’t too many seismic shifts here beyond trends that were already percolating last proxy season. But keep in mind that things are more complex than they seem. As Liz reminded us yesterday, BlackRock and other big asset managers have split the voting functions for their index and active stewardship teams, so there’s a separate set of Global Engagement & Voting Policies and Engagement Priorities for 2026 for BlackRock’s actively managed funds. You’ll need to drill down on holdings to assess the impact of both sets of policies.
As Dave shared in mid-December, the Staff of the SEC’s Division of Trading and Markets issued a no-action letter to the Depositary Trust Company (DTC) to provide relief under various provisions of the Exchange Act for DTC’s pilot version of the DTCC Tokenization Services. These services would allow DTC Participants to elect to have their security entitlements to DTC-held securities recorded using distributed ledger technology, rather than exclusively through DTC’s current centralized ledger. This Mayer Brown alert describes how the DTCC Tokenization Services pilot program works in detail. Here’s a snippet:
Subject Securities. The scope of token‑eligible securities is limited to: (i) securities in the Russell 1000 Index at the time the Preliminary Base Version launches as well as any additions to the index thereafter and notwithstanding the subsequent removal of any securities from the index; (ii) U.S. Treasury securities; and (iii) exchange‑traded funds tracking major indices such as the S&P 500 and Nasdaq‑100.
Tokenization of Book-Entry Entitlements. A DTC participant with a Registered Wallet will be able to instruct DTC to tokenize the participant’s Book-Entry Entitlement to certain eligible securities (“Subject Securities”), as described below, currently credited to the participant’s account (“Account”) on DTC’s centralized ledger system. DTC will then debit the Subject Securities from the Account and credit them to a Digital Omnibus Account – an account on DTC’s centralized ledger that reflects the sum of all Tokenized Entitlements held in all Registered Wallets. Using its Factory system (a software system maintained by DTC), DTC will mint and deliver to the DTC participant’s Registered Wallet a token that represents the participant’s security entitlement to the Subject Securities (“Token”).
Transfer of Tokens. Any DTC participant with a Token will be able to transfer the Token directly to the Registered Wallet of another DTC participant. No instructions to DTC to effectuate the transfer will be required. To avoid “double spend”, Subject Securities credited to the Digital Omnibus Account cannot be transferred from the account until the corresponding Token is burned. As a result, the DTC participant holding a Tokenized Entitlement to a Subject Security will not be able to transfer its beneficial ownership of the Subject Security through instructions to DTC to make changes to its centralized ledger. Rather, such participant must effectuate transfers by transferring the Token on the blockchain, or by instructing DTC to burn or convert the Token.
DTC Tracking and Official Record. DTC will track in near real-time any transfer of Tokens from one Registered Wallet to another Registered Wallet utilizing LedgerScan, an off-chain software system that resides in a public cloud, to track the movement of the Tokens, including the Registered Wallets in which they are held, by scanning the underlying blockchains. LedgerScan will make a record of the Tokenized Entitlements according to the Tokens that are held in each participant’s Registered Wallet(s). For purposes of recording Tokenization Entitlements, LedgerScan’s off-chain record will constitute DTC’s official books and records.
Registered Ownership. Registered ownership of the underlying securities will remain in the name of Cede & Co., DTC’s nominee.
De-Tokenization. A DTC participant may instruct DTC to credit any securities represented by Tokenized Entitlements back to its Account (i.e., convert the Tokenized Entitlement back to a Book-Entry Entitlement in the Account). Upon acceptance of such instruction, DTC will (i) burn the Token in the participant’s Registered Wallet, (ii) debit the securities from the Digital Omnibus Account, and (iii) credit the securities to the participant’s Account.
Yesterday, the WSJ reported that JPM’s asset management group will immediately stop using proxy advisory firms and instead use an internal AI-powered platform to analyze data from the more than 3,000 shareholder meetings it votes at each year — plus provide recommendations to portfolio managers and manage votes. JPM believes it is the first large investment firm to stop using proxy advisors entirely. This is all the more evidence that, as Liz said yesterday on CompensationStandards.com, we’re moving into our “fragmentation era” for investor votes. I worry that this is a “be careful what you wish for” situation, in that the potentially increased flexibility likely comes with more work and potential surprises.
It also means that it’s more important than ever to draft for the “bots,” which has been a recurring topic at our annual conferences over the last few years. Weil’s Howard Dicker shared a prescient recommendation during the panel “Proxy Disclosures: 12 Things You’ve Overlooked” at our 2023 conferences:
Within seconds of you filing your proxy statement on EDGAR, some [. . .] constituencies are using artificial intelligence (“AI”) to, among other things, give a rating, make a recommendation, prepare a summary or report, and write news stories. Maybe even also to vote their shares automatically or to prepare a “fight” letter.
The takeaway is that not only should public companies be considering their varied constituencies, but companies also should be considering the AI technology that some of these constituencies are using. For example, academics and some analysts and investors have long performed computerized “sentiment analysis” on corporate disclosure documents, and some public companies have tried to make their disclosures more “friendly” to these algorithms. At an increasing pace AI is expected to become more sophisticated and its use more prevalent by these constituencies. Companies should take notice of this development, for the proxy statement and all other company disclosures.
Liz expanded on what it means to draft for the bots during the panel “The Proxy Process: Avoiding Surprises – On Time, On Budget & On Value” at our 2025 conferences. She suggested:
– Be cautious about excessive repetition of positive terms and vague disclosures that do not align with business performance. An overly optimistic tone can undermine trust with human readers and will be flagged by newer AI tools.
– Monitor how your disclosure performs in AI models, as their output can have a real-world impact on market sentiment and risk. Don’t overuse terms that signal uncertainty – such as “might” or “possible” – which may cause AI models to predict weak performance.
Shortly after the beginning of the year, Kevin LaCroix blogged on the D&O Diary about 2025 federal court securities suit filing rates. Filings were down during the year, after two years of increases. Kevin’s blog analyzes the conflicting trends that impacted filing rates last year and concludes that AI and crypto suits were up, while SPAC suits and, not surprisingly, COVID suits were down. Our attention, I think, should be focused on the increase in AI-related litigation, and numerous recent Bloomberg Law articles underscore this point. The piece “AI Demands Attention From Corporate Boards to Avoid SEC Scrutiny” from Squire Patton Boggs attorneys warns:
Every few years brings a shiny new source of systemic risk, and public companies have a well-worn habit of falling behind the curve. The sequence is almost predictable: The technology gains traction, and investors push for transparency. Companies then get ahead of themselves in published statements while plaintiff’s lawyers and the SEC begin testing and challenging those statements. As a result, corporate disclosures and governance structures get rebuilt under pressure.
We’ve seen this cycle play out with Y2K, perks cybersecurity, Covid-19, special purpose acquisition companies, climate, crypto, and environmental, social, and governance. AI presents another turn in that cycle, but boards have the opportunity to break it—if they act before the scrutiny arrives.
And that scrutiny is coming sooner rather than later. In “Event-Driven, AI Cases Dominate 2026 Securities Litigation Field,” Fried Frank attorneys warn that AI-related securities litigation will likely ramp up further in 2026, and even marketing language may present a securities litigation risk.
[Q]uantifying AI capabilities and measuring AI performance present a fundamental challenge for public companies. Securities litigation typically follows when optimistic projections cross the line into potentially actionable misrepresentations or when companies fail to adequately disclose potential limitations and risks of AI capabilities . . . For the foreseeable future, there will be considerable uncertainty about which AI-related statements courts will determine are potentially actionable.
As AI-related securities litigation continues its upward trajectory, companies should be mindful that what may seem like standard marketing language about AI capabilities may be understood by courts to be verifiable statements of fact.
Disclosure has truly exploded in recent years, with 55 10-Ks referencing about one AI-related term on average in 2019, compared to 444 (up 700%) in 2024, with an average of 19 references, according to Bloomberg Law. There’s still time to consider your 10-K disclosures and how to improve your board oversight in 2026. Take a look at the recent law firm memos posted in our “Form 10-K” Practice Area; they all discuss AI disclosures. The Squire Patton Boggs article also shares some suggestions. As you meet with your Disclosure Committee and work through your 10-K, think about the following:
Management discussion and analysis. Does AI materially alter demand drivers or cost structures? Does it change how the company competes?
Risk factors. Does AI create new third-party dependencies or operational vulnerabilities? Are current cyber protections sufficient for AI-enabled threat vectors?
Internal controls. Do AI models influence financial inputs, value assumptions, audit workstreams, or forecasting tools? What testing and validation ensures those outputs are reliable?
And as you plan your board meetings, consider whether you’re building in time for boards to understand “how AI is embedded in the organization [and] management’s plans to expand its use.”
They need to know what safeguards govern the organization’s use of generative AI, especially around the use of confidential data or the completion of commercially sensitive tasks.They need to ask how the company is measuring return on AI initiatives and whether external messaging—to customers, employees, and investors—accurately reflect the company’s actual capabilities.They must weigh whether the adoption of AI by the company’s competitors puts pressure on the company’s business mode.
We cover SEC disclosure and corporate governance risks like these here, but if you’re on the front lines of risk management for AI, cyber, and other emerging technologies, be sure to subscribe to our AI Counsel Blog, where we roll up our sleeves and address some of the more granular issues that legal and compliance personnel are confronting when trying to manage the risks of emerging technologies.
Yes, save the dates for our 2026 Proxy Disclosure & 23rd Annual Executive Compensation Conferences! This year, they will be held on Monday, October 12th, and Tuesday, October 13th, at the Hilton Orlando, with our kickoff welcome event in the evening on Sunday, October 11th. If the SEC’s Reg Flex Agenda is any indication, 2026 will be a year of change. By October, we might even be digesting new compensation disclosure requirements and preparing to comply with them in the 2027 proxy season! Wouldn’t that be magical!
Speaking of magic, if you’re looking to make the most of a trip to Orlando, the Hilton Orlando is a Universal Orlando Resort Partner and is located just one mile from the new Epic Universe theme park. So you could pair proxy disclosure, executive compensation, networking and professional development with exploring the Ministry of Magic, sipping a butterbeer (or three — it comes cold, hot and frozen), playing Super Mario Bros IRL and soaring with dragons on the Isle of Berk. (But we all know the real magic is going into a transitional proxy season with all the wisdom and practical guidance our speakers will share, amirite?!)
If you can’t make it in person, it may be (slightly) less thrilling, but you won’t need to miss out on all the tips for complying with whatever disclosure changes will be effective for the next proxy season. We will continue to offer a virtual option plus an on-demand replay and transcripts for all attendees (including in-person attendees in case you play hooky to get in some thrill rides or, more likely, have to miss sessions to take some client calls). I’d go so far as to say that our course materials alone are worth registering for! Look out for future announcements about the agenda, speakers, registration and hotel block.
One of the big questions discussed since Corp Fin’s statement on the Rule 14a-8 process for the 2026 proxy season was how proxy advisors and institutional investors might view companies that exclude shareholder proposals without traditional no-action relief from Corp Fin. U.S. Procedures & Policies (Non-Compensation) FAQ 91 addresses that:
What is ISS’ approach when a company excludes a shareholder proposal from its ballot?
The ability of qualifying shareholders to include their properly presented and legally-compliant proposals in a company’s proxy materials is a fundamental right of share ownership, which is deeply rooted in state law and the federal securities statutes. Shareholder proposals can promote engagement and debate in an efficient and cost effective fashion.
Over the course of the past eight decades, the SEC has played the role of referee in resolving corporate challenges to the inclusion of shareholder proposals in company proxy materials. While courts provide an additional level of review, the vast majority of shareholder proposal challenges have been resolved without the need to resort to costly and cumbersome litigation. While individual proponents and issuers have often disagreed with the SEC’s determinations, the governance community has widely recognized the Commission’s important role as an impartial arbiter of these disputes.
However, the SEC has for the time being determined to no longer play such a role. ISS does not substitute its judgment for that of the SEC in determining whether a proposal is properly excludable under Rule 14a-8. There is extensive precedent with respect to numerous shareholder proposal topics and types establishing whether or not they are appropriate and legal subjects to be presented for a shareholder vote.
Companies choosing to exclude a proposal on “ordinary business” grounds should clearly explain why they believe that to be the case, and when there is precedent from the SEC or a court that appears relevant to the proposal in question, why they believe such a precedent does or does not apply. Companies choosing to exclude a proposal on the basis that it has been substantially implemented or that it conflicts with a proposal being put forward by the company should clearly explain their reason(s) for any significant deviations of the company’s relevant implemented practice from the terms of the shareholder proposal, or how it conflicts with the relevant proposal being put forward by the company.
In certain cases, failure to present a clear and compelling argument for the exclusion of a proposal could be viewed as a governance failure, leading to ISS highlighting the exclusion for our clients’ information through direct reference in the report, contentious flag at the proposal level, or, in rare cases based on case-specific facts and circumstances, a recommendation to vote against one or more agenda items (which may be individual directors, certain committee members or the entire board).
There are also a number of compensation-related updates, which Liz describes in today’s blog on CompensationStandards.com as overlapping with – and expanding upon – the many compensation-related changes to ISS’s benchmark voting policies that will apply to 2026 meetings, but, she notes, also contain some Easter Eggs. And, as always, we are posting policies and related memos in our “Proxy Advisors” Practice Area.
Join us at 2 pm ET tomorrow for the webcast “ISS Policy Updates and Key Issues for 2026” to hear Marc Goldstein, Managing Director & Head of U.S. Research at ISS, share insights with the corporate community. Davis Polk’s Ning Chiu and Jasper Street Partners’ Rob Main will join Marc to provide color commentary. They’ll be covering what transpired in the 2025 proxy season, ISS’s policy updates for 2026 meetings (including the updated FAQ on companies opting to exclude shareholder proposals), other trends and themes expected to impact the 2026 proxy season and emerging issues for the coming year and beyond.
We will apply for CLE credit in all applicable states (except SC and NE, which require advance notice) for this 1-hour webcast. You must submit your state and license number prior to or during the program using this form. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider once your state approves, typically within 30 days of the webcast. All credits are pending state approval.
Members of this site are able to attend this critical webcast at no charge. If you’re not yet a member, try a no-risk trial now by contacting us at info@ccrcorp.com or calling us at 800.737.2171. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. The webcast cost for non-members is $595, and you can sign up for the webcast by contacting us at the email address or phone number listed above.
As Liz noted this week on the Proxy Season Blog, we’re dealing with a number of wildcards going into the 2026 proxy season, and many of them have to do with shareholder proposals. How are proponents responding to recent developments, and how are companies? If you’re grappling with these questions, John just hosted a new, 30-minute Timely Takes Podcast you won’t want to miss. He chatted with Kyle Pinder of Morris Nichols and Brad Goldberg of Cooley about:
Status of precatory proposals under Delaware law
Points of differentiation between Exchange Act Rule 14a-8 and Delaware law
Legal opinion challenges for excluding precatory proposals under Rule 14a-8(i)(1)
Implications of a conclusion that shareholders lack an inherent right to make precatory proposals for activism
Considerations in adoption bylaws regulating precatory proposals
How some are misreading Kyle Pinder’s article
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. You can email me and/or John at mervine@ccrcorp.com or john@thecorporatecounsel.net.
We have generally been covering developments related to the Outbound Investment Security Program on DealLawyers.com, but, since its adoption, capital markets practitioners and investment banks have been raising issues with the fact that it wasn’t crystal clear that certain routine public capital markets offerings weren’t captured because of the way the publicly traded securities exception was worded. As this Simpson Thacher article notes, the Treasury Department updated its FAQs (interactive version) at the end of last year to clarify what types of offerings are covered by the exception. This excerpt describes the new clarifications:
– Follow-On Offering Is Excepted: The Treasury Department makes clear that a follow-on offering falls under the publicly traded security exception where the new offering of securities are of the same CUSIP as publicly traded securities or otherwise “are of the same class as the securities that are already publicly traded and, upon issuance [and] will be fungible with such publicly traded securities,” and does not afford the U.S. person rights beyond standard minority shareholder protections with respect to the issuer. The participation in such follow-on offerings by both U.S. investors and U.S. underwriters likewise qualifies under the same exception.
– Convertible Bond Offering Is Excepted: The acquisition of a contingent equity interest “that is convertible into, or provides the right to acquire, only a publicly traded security” also qualifies as an excepted transaction provided again that it does not convey rights beyond standard minority shareholder protections. The FAQ expressly offers as an example a convertible note issuance where the debt interest may be converted into publicly traded securities. The exception will apply equally where the security may be converted alternatively into cash or another form of consideration that is not covered by the OIR.
– IPO Subscription Is Excepted: The publicly traded securities exception also applies to acquisition of IPO shares by U.S. investors pursuant to a subscription agreement (or other agreement such as a standby underwriting agreement) even if entered into prior to such listing, so long as “at the time of such acquisition the equity interest is publicly traded.” This clarification will be helpful to cornerstone investors who typically sign subscription agreements prior to the occurrence of an IPO.
– Director Nomination Right Is A Standard Minority Shareholder Protection: Because the publicly traded securities exception and other passive investment exceptions apply only where the U.S. person will not be afforded rights beyond standard minority shareholder protections, exactly what rights are considered standard minority protection is crucial and has been subject to different views. The Treasury Department here makes clear that a shareholder’s “right to nominate (that is, propose for election) an entity’s directors” would be considered a standard minority shareholder protection for purposes of publicly traded securities and passive investments exceptions “if that right is generally available to similarly situated shareholders of that entity solely by virtue of their minority shareholding.” By contrast, the Treasury Department warned that the right to appoint a director does not constitute a minority shareholder protection. That is so regardless of whether such a right is accorded to similarly situated shareholders.
– Treasury Reverses Its Prior Position Regarding PRC Statute: Further to the last point on standard minority shareholder protections, the Treasury Department explains that, upon further consideration, it “has determined that proposal rights generally available to similarly situated shareholders (such as shareholders meeting a certain low ownership threshold set in PRC statute) would qualify as standard minority shareholder protections.”
The alert says these FAQs will be “welcomed by global capital markets” with a caveat:
[N]one of the new FAQs exempts U.S. underwriters in connection with a new IPO where the underwriters would acquire shares before they become publicly traded (ancillary services by underwriters that do not involve the acquisition of non-publicly traded shares are permitted). As we discussed in our earlier alert, that is not the case with the NDAA, which explicitly excepts “the temporary acquisition of an equity interest for the sole purpose of facilitating underwriting services.” Until and unless the Treasury issues new regulations, parties should continue to act in full compliance with the OIR, including restrictions on U.S. underwriters in connection with IPOs.
