Corporate boards and management face a stark and defining choice this proxy season. Shifting political winds in Washington – and a retreat by the SEC from investor protection and enforcement – will offer companies what might seem like a ‘get out of jail free’ card.
But this proxy season and the three years that follow will be a litmus test for corporate America. The question on everyone’s mind is How will public corporations behave in a world where the SEC is actively attempting to reduce market rules and regulations, including the rules governing shareholder proposals and voting rights?
One likely outcome is a bifurcation of the market into two classes of companies: those that choose to maintain a healthy, trusting and open relationship with their investors, versus those that go dark, severing the lines of communication that create alignment with – and accountability to – investors.
Issuers that choose to reduce material disclosures, refuse proposals on proxies and dismantle ESG commitments risk eroding the trust they have built with their investors. Smart governance is not about doing the minimum required by law, but it is about minimizing risk to maximize long-term value.
Danielle Fugere, president and chief counsel, As You Sow
For close to a century, the relationship between corporations and their shareholders has been grounded in a property-rights framework. Shareholders provide capital and in return receive not only potential financial returns, but also defined rights in the company, including the right to be informed about material issues, to raise concerns and to vote. At the heart of this relationship is the shareholder resolution process, an orderly and efficient mechanism through which investors seek material information, surface risks and suggest actions that address those concerns before they escalate into costly crises that damage brand value and drive talent and customers to competitors.
The SEC’s recent decision to cancel the agency’s longstanding role as a neutral arbiter of the shareholder proposal process creates uncertainty for all parties. Although the Division of Corporation Finance cited this year’s government shutdown and resource constraints as justification for abandoning this historical role, chairman Atkins has been outspoken in his criticism of the shareholder proposal process and the SEC rules that govern it. This includes a recent speech in which he asserted that Delaware law may prohibit non-binding shareholder proposals.
Corporate executives and boards that take advantage of this chaotic deregulatory moment to shut down the shareholder process signal a lack of respect for shareholder rights and, at best, win a Pyrrhic victory. The consequences of taking this cavalier route will be pecuniary, because when transparency vanishes and good governance erodes, risk premiums rise. As my colleague Andrew Behar noted recently, issuers shouldn’t be surprised when portfolios overweight companies that maintain the ‘steady ship’ of transparency and underweight those that choose to work in the shadows.
The shareholder resolution process allows board directors to hear directly from the market about emerging risks at the cost of little more than a few emails, a meeting with shareholders and a statement on their proxy. If companies close this channel, shareholders will not simply go away – many will be bound by fiduciary duty to escalate their concerns through other means, most of which are more costly, time consuming and public than the shareholder proposal process. Shareholders will no doubt prefer the well-defined and limited proposal process to alternative avenues such as no-confidence votes against directors, books-and-records demands, board contests or litigation, among others.
Bennett Freeman, in a recent analysis for Chatham House, notes that a retreat from the rule of law and normative standards in the US risks undermining global investor confidence in American markets. International markets, particularly in Europe, are moving toward greater transparency and more effective sustainability mandates. US companies that strip away these protections may find themselves isolated, losing access to global capital and the trust of stakeholders.
While we have lived through similar deregulatory cycles, where market guardrails are removed in the name of ‘freeing’ business, the result is rarely innovation. Instead, the result tends toward excess, scandal, and market collapse – followed, inevitably, by reregulation.
Boards face a simple choice in 2026: seize a short-term political opportunity to evade shareholder participation and oversight – risking reputation and their capital base – or take a conservative, long term view by strengthening relationships with investors and preserving the process and structures that have made US public markets the envy of the world.
Political administrations come and go, but the fiduciary duty of shareholders to preserve and grow a company’s value will outlast them all.
The companies that will thrive in the next decade, as they have in the past, will be those that treat shareholders as partners, not nuisances; that understand that sunlight is the best disinfectant; and that recognize stonewalling and silence are not strategies. The 2026 proxy season will reveal which board directors are building for the future and which are merely opportunistic, unable to look beyond the present moment.