By Vanguard Law & Governance Unit with the work of Lucian Bebchuk, Jill Fisch, Leo E. Strine Jr., Robert J. Jackson Jr., and Nell Minow.

The End of a Familiar Backstop

For decades, the shareholder proposal process operated with a familiar rhythm. A shareholder submitted a proposal under Rule 14a-8. The company reviewed it against procedural and substantive exclusion grounds. If management believed the proposal could be omitted, the company often sought no-action relief from the staff of the Securities and Exchange Commission. The SEC staff’s response did not bind a court, and it did not formally adjudicate the dispute. But in practice, it served as a powerful market signal. If the staff concurred with exclusion, most proponents moved on. If the staff declined to concur, most companies included the proposal.

That structure gave both sides something valuable: a procedural checkpoint. Companies had a way to test their exclusion arguments before printing proxy materials. Shareholder proponents had a forum to challenge management’s reasoning without immediately filing suit. Boards had a source of practical predictability in a process that could otherwise become politically charged, legally technical, and reputationally sensitive.

The 2026 proxy season altered that balance.

In November 2025, the SEC’s Division of Corporation Finance announced that, for the current proxy season, it would not substantively respond to most no-action requests involving shareholder proposal exclusions. The staff said it would continue to review requests under Rule 14a-8(i)(1), which concerns proposals that are not proper subjects for shareholder action under state law, but it would generally not express views on other bases for exclusion. Companies could still notify the SEC and proponents of their intention to exclude a proposal. They could also request a form of response if they provided an unqualified representation that they had a reasonable basis for exclusion. But the staff would not evaluate that representation or provide substantive analysis.

The result is a changed governance environment. Companies now have more discretion. They also have more exposure.

The absence of routine SEC staff review does not eliminate Rule 14a-8. It changes who must bear the risk of interpreting it. In prior seasons, the staff’s no-action process often absorbed uncertainty. In 2026, that uncertainty moved closer to the boardroom, the general counsel’s office, and, increasingly, federal court.

A Proxy Season Defined by Uncertainty

The 2026 proxy season has not produced a simple increase in shareholder proposals. In fact, the number of submissions declined. Publicly reported data through the season showed shareholder proposal submissions falling from 951 in 2025 to approximately 789 in 2026. Corporate governance proposals represented the largest share, accounting for roughly 49% of submissions. Environmental and social proposals continued to decline, and neither environmental proposals nor anti-ESG proposals produced significant majority support.

That decline, however, should not be mistaken for stability. The more important development is not the total number of proposals. It is the changing negotiation structure around them.

In the prior model, companies and proponents often negotiated in the shadow of the SEC staff. The possibility of staff concurrence or non-concurrence shaped the parties’ expectations. A proponent could assess whether the company’s exclusion argument was likely to succeed. A company could weigh the cost of including the proposal against the risk of staff disagreement. Even when the staff’s position was informal, it created a practical settlement framework.

In 2026, that framework weakened. Companies still have to decide whether a proposal is excludable. Proponents still have to decide whether to challenge exclusion. But the SEC’s reduced role means that the parties have less advance guidance. The result is a more strategic, and potentially more adversarial, process.

Some companies appear to have responded cautiously. Contrary to early expectations, many did not aggressively exclude more proposals simply because the SEC had stepped back. In some cases, companies included proposals even after submitting exclusion notices or receiving a non-objection response based solely on management’s representation. That caution reflects a basic governance reality: a company can win the legal argument and still lose the investor-relations argument.

The new landscape therefore cannot be understood as a management victory alone. It is a redistribution of risk.

From Administrative Review to Litigation Risk

The most important practical consequence of reduced SEC oversight is the rise of litigation as a substitute forum. Historically, shareholder proposal litigation was relatively rare. The no-action process gave companies and proponents a specialized administrative mechanism for resolving many disputes before they escalated. Once the SEC stopped providing substantive responses to most requests, proponents had fewer procedural options short of litigation.

That shift became visible quickly. Shareholders began filing suits challenging proposal exclusions, including cases involving workforce diversity disclosures, animal welfare proposals, and other governance or social-policy topics. Some cases settled quickly, with companies agreeing to include the disputed proposals. Others raised broader questions about how courts should interpret Rule 14a-8 without contemporaneous staff guidance.

This creates a new form of risk for boards. Previously, a no-action request could be framed as a technical securities-law process. Now, exclusion decisions may become public litigation events. That changes the board’s calculus. A proposal that appears excludable under prior staff guidance may still create reputational cost if the proponent sues, if the case attracts media attention, or if institutional investors perceive the exclusion as an attempt to avoid accountability.

The legal risk is not limited to the merits of the proposal. Timing matters. Proxy materials have production deadlines. Annual meetings cannot be indefinitely delayed. A court challenge filed close to printing or mailing can create operational pressure. Even if the company ultimately believes it has a strong exclusion argument, the cost of defending that argument may exceed the cost of including the proposal.

This is why reduced SEC oversight creates both discretion and discipline. Companies have more room to act, but they must make decisions in a more exposed environment.

The Proxy Advisor Shift

At the same time, proxy advisory firms have adjusted their own policies in ways that reinforce the move away from automatic voting positions. ISS announced that it would apply a case-by-case approach to many environmental and social shareholder proposals, including requests related to climate-risk reporting, greenhouse gas emissions, diversity and data policies, supply-chain human rights, and political contributions. Rather than broadly supporting categories of proposals, ISS indicated that it would consider factors such as existing company disclosure, the scope of the request, peer practices, and recent controversies, litigation, violations, or fines.

Glass Lewis also clarified aspects of its policy framework, including its approach to supermajority voting requirements. It indicated that proposals to eliminate supermajority provisions may be evaluated case by case, particularly where a company has a large or controlling shareholder and supermajority protections may serve minority-shareholder interests.

These policy shifts matter because proxy advisors operate as part of the governance infrastructure. They do not determine outcomes on their own, but their recommendations shape institutional voting behavior, especially when proposals involve technical governance questions or contested narratives. A more case-by-case proxy advisory model increases the importance of company-specific explanation.

For boards, this means that generic opposition statements are less effective. A company opposing a shareholder proposal must explain why the requested action is unnecessary, overly prescriptive, duplicative, poorly timed, or inconsistent with long-term value. It is no longer enough to say that the board already manages the issue. Investors want evidence of oversight, disclosure, responsiveness, and business judgment.

The proxy advisor shift also means proponents face a higher burden. A proposal that would once have received support because it fit a favored category may now need a stronger company-specific rationale. This has contributed to a more selective shareholder proposal environment. Broad social-policy proposals are less likely to succeed unless they are tied clearly to financial risk, governance failure, or material company exposure.

Governance Returns to the Center

The decline in environmental and social proposal support does not mean shareholders have lost interest in governance. In fact, governance proposals remained the dominant category in 2026. Independent chair proposals, written consent rights, special meeting rights, elimination of supermajority voting requirements, and dual-class voting transparency all remained active topics.

The pattern is important. Investors may be less willing to support broad environmental or social mandates, but they continue to focus on shareholder rights, board accountability, and voting power. Governance is the durable center of the shareholder proposal system because it determines how future disagreements will be handled.

Independent chair proposals illustrate the point. They were among the most common governance proposals in 2026, yet they generally did not receive majority support. That suggests investors are not uniformly demanding separation of the chair and CEO roles. Instead, they are evaluating leadership structure in context. A combined chair and CEO role may be acceptable where the board has strong independent leadership, credible oversight, and good performance. It may become vulnerable where investors perceive weak accountability or excessive management influence.

Written consent and special meeting proposals show a similar dynamic. Shareholders often support mechanisms that give them greater ability to act between annual meetings, but support depends on the company’s existing rights, ownership structure, and governance history. Supermajority voting proposals can attract meaningful support because investors generally prefer governance structures that allow a majority of shares to act. But even here, proxy advisors and investors may consider whether special circumstances justify higher thresholds.

The lesson for boards is that governance credibility now matters more, not less. Reduced SEC involvement may lower one procedural barrier for companies seeking to exclude proposals, but it does not reduce investor scrutiny. If anything, it shifts more judgment to investors, advisors, courts, and the public market.

The Management Temptation

The most dangerous response to the new landscape is overconfidence. Some management teams may interpret reduced SEC oversight as an invitation to exclude more proposals. That would be a mistake.

The absence of SEC staff review does not make weak exclusion arguments stronger. It only removes one source of advance feedback. If a company excludes a proposal on uncertain grounds, it must be prepared to defend that decision to shareholders, proxy advisors, courts, and possibly the media. The legal standard remains. The reputational standard may be higher.

Boards should be especially cautious where a proposal addresses a topic of visible stakeholder concern. Workforce disclosure, political spending, climate risk, artificial intelligence governance, human rights, executive compensation, and shareholder rights can all attract attention beyond the technical Rule 14a-8 analysis. A company may believe a proposal is excludable as ordinary business, substantially implemented, vague, duplicative, or economically irrelevant. But the investor question will often be simpler: why is the company unwilling to let shareholders vote?

That question can be damaging if the company does not have a strong answer.

The strongest answer is not legalistic. It is governance-based. The company should be able to say that the board has reviewed the issue, that existing disclosures and oversight mechanisms are sufficient, that the proposal is unnecessary or counterproductive, and that exclusion is consistent with shareholder value. Without that broader explanation, exclusion can look defensive.

A Board Framework for 2026

Boards should adopt a more disciplined model for evaluating shareholder proposals in this environment. The process should not begin with the legal question alone. It should begin with a broader governance assessment.

The first question is materiality. Does the proposal address a matter that is financially, strategically, operationally, or reputationally important to the company? A proposal can be poorly drafted and still identify a real issue. If the underlying concern is material, the board should address it directly, even if the specific proposal is flawed.

The second question is existing oversight. Has the board assigned responsibility for the issue to a committee? Does management regularly report on the matter? Is there evidence of active oversight? Investors increasingly distinguish between companies that merely say the board oversees a risk and companies that can show how oversight occurs.

The third question is disclosure sufficiency. If the company already discloses meaningful information on the topic, it may have a stronger argument that the proposal is unnecessary or substantially implemented. If disclosure is thin, opposition may appear evasive. The quality of disclosure often determines whether investors trust the board’s position.

The fourth question is legal defensibility. Does prior SEC guidance, judicial precedent, or the text of Rule 14a-8 support exclusion? Under the new process, companies must be especially careful not to rely on aggressive interpretations that cannot be defended outside the staff process.

The fifth question is escalation risk. Will exclusion likely trigger litigation, a public campaign, negative proxy advisor attention, or institutional investor concern? If the answer is yes, the board should compare the cost of exclusion with the cost of inclusion and engagement.

The sixth question is strategic engagement. Can the company negotiate withdrawal by offering disclosure, a meeting, a governance commitment, or a future review? Even when engagement does not eliminate the proposal, it can improve investor perception and reduce adversarial pressure.

This framework moves the decision away from a narrow legal exercise and toward an integrated governance judgment.

Engagement as Risk Management

In the new shareholder proposal landscape, engagement is not a courtesy. It is a risk management tool.

Private engagement can help companies understand the proponent’s underlying objective. Some proposals are designed to force a vote. Others are designed to open a conversation. A company that engages early may be able to negotiate withdrawal, narrow the proposal, or address the concern through existing governance channels. Even when no agreement is reached, engagement gives the company a stronger record.

The most effective engagement is specific. Boards and management teams should avoid generic assurances that the company “takes the issue seriously.” Investors hear that language constantly. They respond better to concrete information: who oversees the issue, how often it is reviewed, what metrics are tracked, what disclosures already exist, and what additional steps may be considered.

Engagement should also distinguish between proponents. A large institutional investor, a public pension fund, an advocacy organization, and an individual activist may have different incentives. Some are focused on long-term governance. Some are focused on public visibility. Some are testing broader policy arguments. The company’s response should reflect the proponent’s influence, objectives, and likelihood of escalation.

This does not mean companies should concede to every demand. It means boards should understand when engagement can preserve credibility while maintaining discretion.

Maintaining Governance Credibility

The central challenge in 2026 is balancing management authority with investor legitimacy. Boards are elected to direct the corporation. They should not outsource strategic decisions to every shareholder proposal. But they also cannot treat shareholder input as an inconvenience. The proposal process exists because shareholders need a mechanism to raise concerns within the corporate governance system.

Reduced SEC oversight makes that balance more visible. When the staff no longer provides substantive views, companies cannot hide behind administrative concurrence. They must own the decision.

That ownership can be an advantage if boards use it well. A company that evaluates proposals carefully, engages respectfully, explains its reasoning, and maintains strong governance practices can strengthen investor trust. A company that uses the new process to avoid uncomfortable topics may create the opposite effect.

Credibility comes from consistency. If a board opposes a proposal on the ground that it is unnecessary, the company’s disclosures should make that position believable. If a board says it already oversees a risk, committee charters and proxy statements should support that claim. If management argues that a proposal is overly prescriptive, it should offer a reasonable alternative for addressing the underlying concern.

The companies most exposed in this environment are not those that oppose shareholder proposals. They are those that oppose them without a persuasive governance story.

The New Proxy Discipline

The 2026 proxy season should be understood as a transition year. The SEC’s reduced no-action role may not remain permanent in its current form. Rulemaking could further change the process. Future administrations, courts, or SEC leadership could revise the balance again. Proxy advisor policies will continue to evolve. Shareholder proponents will adjust their tactics.

But the deeper shift is likely to endure. Boards will face greater pressure to integrate legal analysis, investor engagement, disclosure strategy, and litigation risk into a single decision process.

The shareholder proposal landscape is no longer a predictable administrative pathway. It is a strategic governance arena.

For management, that means discretion must be matched with judgment. For boards, it means the proposal process should receive more attention earlier in the governance calendar. For investors, it means proposal quality matters more. Broad, symbolic, or duplicative proposals will face greater resistance. Targeted, material, company-specific proposals will remain difficult for boards to dismiss.

The new environment does not simply empower companies. It tests them.

Companies now have more room to decide what belongs in their proxy materials. But every exclusion decision carries a message. It tells investors how the board views accountability, how management handles dissent, and how seriously the company takes shareholder rights.

The strongest boards will not treat the SEC’s retreat as permission to become less transparent. They will treat it as a reason to become more disciplined. In 2026, governance credibility will depend less on whether a company can exclude a proposal and more on whether it can explain why doing so serves the long-term interests of the corporation and its shareholders.