Executive Summary

As the 2026 proxy season prepares to go into full swing, significant structural shifts are underway in the proxy voting ecosystem. Regulatory scrutiny, evolving investor stewardship frameworks and innovations in retail voting platforms are combining to complicate traditional assumptions about governance activism. For shareholder activists, whether hedge funds, ESG- or sustainability-oriented groups or other investors, the new regime presents both opportunities and headwinds.

Key Takeaways for Activists

• Traditional “one-size-fits-all” proxy advisor recommendations are being phased out, making vote outcomes less predictable and raising the bar for building coalition support.
• Proxy advisor influence is under pressure from regulatory and legal challenges, shrinking a familiar lever for activism.
• Retail voting programs and pass-through voting by institutional investors could dilute concentrated vote blocks or provide new avenues to mobilize retail shareholders.
• The threshold for formal shareholder proposals may rise, and companies may more readily exclude shareholder proposals (e.g., E&S proposals), underscoring the need for early engagement and strategic planning.

What’s Changing – At a Glance

Is Proxy-Advisor Influence Eroding?

Recent developments indicate that the long-standing influence of proxy advisory firms – especially Institutional Shareholder Services (ISS) and Glass Lewis – face intensifying regulatory, legal and private sector pressure.

Executive Order and Investigations

On December 11, 2025, President Trump signed an executive order (Order) directing federal agencies (including the U.S. Securities and Exchange Commission (SEC) and Federal Trade Commission (FTC)) to scrutinize these firms’ practices, especially their treatment of environmental, social & governance (ESG) and diversity, equity & inclusion (DEI) issues, and to consider whether their market power raises antitrust or securities concerns.

The Order instructs regulators to review existing policies, increase oversight and potentially tighten fiduciary and transparency requirements for proxy advisors. This move, framed by the administration as curbing what it describes as “politically motivated agendas” in proxy recommendations, reflects a broader backlash by critics of ISS and Glass Lewis relating to their respective influences on corporate governance matters.

The Order is the latest in a series of investigations targeting proxy advisory firms. Last spring, the House Judiciary Committee initiated an antitrust investigation into the firms. Likewise, in November 2025, it was widely reported that the FTC had commenced an investigation of the firms for potential antitrust violations relating to ESG-related voting recommendations.

Clearly, the firms will have taken notice of the Order and its potential implications. Likewise, boards of directors and institutional investors also will be aware of the Order and the investigations, which, when taken together, may influence their behavior—either directly, through the adoption of new rules and regulations that change how proxy advisors are permitted to operate, or indirectly, by prompting changes to voting recommendation methodologies and greater transparency, in each case to reduce the risk of conflict with regulators and other government officials.

Litigation and Legislation

On November 20, 2025, Florida’s attorney general filed a lawsuit against ISS and Glass Lewis, alleging that the firms engaged in unlawful violations of that state’s consumer protection and antitrust laws. Relatedly, on June 20, 2025, Texas Governor Greg Abbott signed S.B. 2337, a new law regulating how proxy advisory firms conduct business in that state¹.

ISS and Glass Lewis filed lawsuits challenging S.B. 2337 and, on August 29, 2025, a federal district court judge issued a preliminary injunction barring the state from enforcing that legislation pending the resolution of the litigation and the Texas attorney general announced in November 2025 that he was abandoning efforts to revive S.B. 2337.

Shareholder Action

On January 7, 2026, JPMorgan Chase’s (JPMC) asset management unit, with more than $7 trillion in client assets under management, announced that it is cutting ties with all proxy advisory firms effectively immediately, and instead, will rely on an internal artificial intelligence (AI) tool to analyze voting data from annual meetings to inform its proxy voting decisions.

Shortly after JPMC’s announcement, Wells Fargo Wealth & Investment Management (WIM) announced that it, too, will be reducing its reliance on proxy advisory firms. Going forward, WIM intends to use an internally developed, proprietary tool to manage proxy voting. In announcing the shift, WIM indicated that it expects its new approach to enhance its independence and reduce reliance on third parties. The decisions by WIM and JPMC follow enhanced scrutiny of proxy advisory firms by federal and state regulators, as well as other stakeholders.² Observers are left to wonder whether additional large asset managers and institutional investors will follow suit.

Response

In light of the Order, investigations, litigation, legislation and shareholder action, proxy advisory firms are already reworking their business models. Glass Lewis, for instance, has announced that by 2027 it will abandon its standard benchmark voting policy in favor of providing clients with customized voting frameworks that reflect individual investors’ stewardship philosophies. Likewise, ISS has announced that, while it intends to retain its benchmark policies, it will now offer two governance research services that will enable investors to reach individualized voting decisions.

For activists, the erosion of proxy advisory influence may be a double-edged sword. While the fallback of a uniform “benchmark yes/no” vote recommendation vanishes, it will likely become correspondingly more difficult for companies to reliably count on significant shareholder voting blocs aligned with proxy advisor recommendations as has been the case for years. As a result, voting outcomes may become more uncertain, particularly with respect to contested director elections, say-on-pay votes, significant strategic transactions or governance-related proposals. This may be particularly worrisome in situations where activists focus on specific investors.

Institutional Investors’ Voting Is Fragmenting

The 2026 proxy season is arriving amid a wave of reorganization within the stewardship arms of major asset managers. Several major institutional investors and asset managers have reportedly split their stewardship operations, separating index-fund management from active strategies or sustainability-focused stewardship.

Significantly, many institutional investors are beginning to offer (or expand) “voting choice” or “pass-through voting” arrangements. These programs will enable retail or fund-investor clients to select among different voting policies (e.g., sustainability-oriented, religious or management-aligned policies) or to even specify their own preferences, rather than handing over a block vote to the fund manager. In addition, federal policymakers are evaluating policy changes that could require institutional investors to align voting decisions proportionately with how other beneficial owners have voted.

For activists, this fragmentation may present both a threat and an opportunity. On the one hand, it undercuts the power of concentrated institutional vote blocs that previously could be courted or pressured. On the other hand, if activists can succeed in mobilizing retail or small-investor participation via these pass-through channels (or persuade asset managers’ stewardship wings to adopt favorable policies), they may assemble more diverse (and potentially more aligned) coalitions to support proposals or board campaigns. In either case, the increasing decentralization of decision making within institutional investors may mean that companies will need to engage with several teams within a single asset manager and could result in less predictable voting outcomes.

Shareholder Proposals and Engagement Face New Regulatory Hurdles

Under new staff guidance from the SEC, investors that hold roughly 5% of a company’s equity may lose “passive-investor” status if they apply pressure on management to adopt specific policy or governance changes (e.g., in relation to executive pay or DEI policies) or threaten to withhold support for director nominees unless demands are met. That triggers more onerous disclosure obligations (i.e., preparing and filing a Schedule 13D rather than 13G). As a result, many institutional investors are reportedly more hesitant to engage proactively on contentious issues.

Simultaneously, companies face increased latitude to exclude shareholder proposals from being considered by shareholders, especially those focused on ESG or DEI issues. In fact, SEC Chairman Atkins recently remarked that precatory (i.e., non-binding) proposals may be properly excluded pursuant to Rule 14a-8(i)(1) of the Securities Exchange Act of 1934, as amended.

In addition, the SEC’s Division of Corporation Finance recently announced that it will largely stop issuing staff responses to Rule 14a-8 no-action requests for the 2025–26 proxy season, other than no-action requests to exclude a proposal under Rule 14a-8(i)(1). This move, prompted in part by recent resource constraints at the agency due to the recent federal government shutdown and the belief that companies already have ample guidance on the treatment of shareholder proposals, potentially represents a consequential shift in terms of how the SEC handles shareholder proposals.

For activists accustomed to advancing potentially controversial proposals, the combined effect may be to raise the bar significantly in terms of using the shareholder proposal process to advance strategic goals. This will surely make early engagement and coalition building even more critical.

Strategic Implications for Activists

Against this backdrop, investors seeking to influence corporate governance in 2026 and beyond should consider the following strategic implications:

• Rethink the reliance on proxy-advisor driven campaigns. The dilution of uniform benchmark recommendations are likely to diminish recommendations as a reliable lever for activism. As a result, activists should not assume that a favorable vote from a single advisor will translate into broad support. Successful campaigns will likely require more direct outreach to institutional investors and increasing attention to smaller investors, including via retail voting programs.
• Proxy advisor behavior may change ahead of formal rulemaking. Even absent finalized regulatory action, proxy advisors may proactively adjust research priorities, methodologies and presentation to reduce perceived regulatory exposure. Coverage may tilt toward issues that are more clearly defensible as financially material (e.g., pay-for-performance alignment, director accountability and disclosure mechanics), while narrative or policy-driven assessments receive less emphasis.
• Monitor asset-manager voting-policy fragmentation and target voting-choice programs where feasible. The expansion of pass-through or voting choice programs by major managers may provide a pathway to engage a broader base of shareholders, including retail investors, that might be more responsive to activist messaging. Activists may need to build tailored communications directed at retail holders, as well as stewardship policy teams within asset managers.
• Prioritize early and sustained engagement, especially where activist proposals involve ESG, DEI or executive compensation issues. Given the increased risk of investigations, litigation or regulatory objections, “spring-loaded” proposals are likely to face more scrutiny. Groundwork must be laid well ahead of the meeting season, including careful legal analysis and coalition-building.
• Treat vote outcomes as less predictable and plan alternative pathways. Given the growing uncertainty, activists may need to assume narrower margins of victory, or even failure, and plan fallback strategies, such as public pressure campaigns, “withhold”/“vote-no” director campaigns or long-term reputational pressure, rather than relying solely on a successful shareholder vote.
• Leverage structural changes: retail voting, fragmented stewardship and evolving advisor models. While the changes create obstacles, they also open new tactical options. Resourceful activists that can build retail-oriented outreach, exploit fragmentation in institutional voting policies or develop tailored engagement pitches have a chance to gain ground, especially at companies where concentrated insiders or management blocks have previously insulated them from pressure.

What Companies Should Watch – and What Activists Should Do Next

• Companies should not assume that securing a favorable recommendation from a proxy advisor, or locking in votes from large institutional holders, will ensure vote success. They should begin mapping out all relevant shareholders, including smaller or retail holders and anticipate engagement requests or outreach in advance.

• Activists should begin identifying and analyzing companies whose shareholder base is “retail-heavy,” or where major asset manager voting policies appear fragmented. Retail voting programs (whether manager sponsored or independent) may become a strategic battleground.

• Corporate governance counsel and activists alike should review current corporate proxy disclosure practices, submission strategies for proposals and the timing of engagement. Given evolving SEC guidance, earlier engagement and even pre-filing informal dialogues may help avoid the risk of proposals being excluded or dismissed.
• Finally, activists should consider complementary tools beyond the traditional shareholder proposal route: public campaigns, reputational pressure, media engagement and grassroots retail mobilization may increasingly supplement or replace conventional proxy season tactics.

^{1 We wrote about S.B. 2337 here.}

^{2 We wrote about the enhanced scrutiny of proxy advisory firms here.}