Executive Summary
In a pivotal decision issued on July 1, 2025, the U.S. Court of Appeals for the D.C. Circuit ruled that proxy voting advice issued by proxy advisory firms such as Institutional Shareholder Services (ISS) and Glass Lewis does not constitute a “solicitation” under the Securities Exchange Act of 1934 (the Exchange Act). This decision invalidates the U.S. Securities and Exchange Commission’s (the SEC or the Commission) 2020 rule that sought to regulate proxy advisors more stringently and significantly narrows the Commission’s authority in this space. The ruling is a major win for proxy advisory firms (and, presumably, their clients, institutional investors), while presenting a setback for many issuers and industry groups seeking greater transparency and oversight. The decision also signals a potential shift in how the SEC may approach future regulation of proxy advice.
The Decision
The D.C. Circuit held that proxy voting advice is not a “solicitation” under the Exchange Act, as it does not involve advocacy or a request for proxy authority. The court emphasized that such advice is advisory in nature and already subject to regulation under the Investment Advisers Act. The ruling invalidates the SEC’s 2020 rule that imposed enhanced disclosure and procedural requirements on proxy advisors.
Implications
- Proxy Advisors: Freed from the 2020 rule’s burdens, proxy advisory firms do not need to be concerned with being treated as solicitors when they continue to provide their independent advice.
- SEC Authority: The ruling limits the SEC’s ability to regulate proxy advice under the Exchange Act, potentially requiring new legislative or rulemaking approaches.
- Public Companies: Issuers may face continued challenges in engaging with proxy advisory firms and influencing institutional voting outcomes.
- Regulatory Outlook: The decision introduces uncertainty into the SEC’s broader regulatory agenda and may prompt renewed focus on alternative statutory frameworks.
Recent Developments in Proxy Regulation and Shareholder Proposals
In addition to the court’s ruling, this year has been shaped by several notable trends and regulatory shifts, as discussed in Freshfields’ Trends and Updates from the 2025 Proxy Season:
Fewer Proposals, Lower Support as compared to 2024
- The 2024 proxy season saw the highest number of shareholder proposal submissions since 2015—929. A notable increase in proposals on majority voting and director resignation bylaws contributed to this high total.
- In 2025, we have seen a marked decline in shareholder proposals, particularly on environmental and social issues, driven by the SEC’s SLB 14M guidance and increased no-action relief.
- Shareholder support for ESG proposals has also waned in 2025, reflecting broader market fatigue and shifting investor priorities.
More Targeted Proposals
- 2024 saw shifting proposal themes in line with prior years’ trends of following events of cultural significance. While governance and social proposals increased, civic engagement and environmental proposals declined. The top five topics included climate change, diversity, simple majority vote, director resignation bylaws, and independent chair proposals.
- In 2025, proponents are tailoring proposals more precisely to company-specific practices and industry dynamics, more carefully targeting broad, thematic E&S initiatives compared to prior years, while also continuing to focus on governance proposals (see below).
Return to Governance Fundamentals
- Amid regulatory and geopolitical uncertainty, investors are gravitating toward traditional governance and compensation proposals, seen as more stable and actionable.
Quiet Periods in Engagement
- Following recent SEC guidance, many institutional investors have reduced direct engagement, leaving issuers with less visibility into investor expectations ahead of the 2026 season.
Administrative Turnover
- The change in administration mid-season has already influenced SEC priorities, proxy advisor recommendations, and institutional voting behavior, though most shareholder proposals were submitted prior to the transition.
Anti-ESG Momentum
- Despite limited traction for anti-ESG proposals, legislation and litigation in several states continue to shape corporate disclosure and risk management strategies.
Activism Evolves
- Activists are increasingly pursuing non-traditional tactics, including “vote-no” campaigns and settlements without board seats, signaling a more flexible and persistent approach to influence.
In early 2025, the SEC and market participants have also navigated:
- No-Action Requests Rebound: Between January 1, 2025 and June 16, 2025, companies submitted 363 no-action requests to the SEC, already dwarfing the total 2024 figure of 267 no-action requests.
- Rule 14a-8 in Focus: The SEC’s Division of Corporation Finance continues to process no-action requests under Rule 14a-8, with updated guidance and procedures issued in early 2025.
Strategic Considerations
- Institutional Investors: Continue to utilize proxy advisors while monitoring evolving fiduciary standards and engagement expectations.
- Public Companies: Prepare for a more opaque engagement environment and tailor governance strategies to reflect investor caution and regulatory flux.
- Proxy Advisory Firms: While the court’s ruling is favorable, firms should anticipate continued scrutiny through alternative regulatory or legislative channels.
Implications
- Proxy Advisors: Freed from the 2020 rule’s burdens, proxy advisory firms do not need to be concerned with being treated as solicitors when they continue to provide their independent advice.
- SEC Authority: The ruling limits the SEC’s ability to regulate proxy advice under the Exchange Act, potentially requiring new legislative or rulemaking approaches.
- Public Companies: Issuers may face continued challenges in engaging with proxy advisory firms and influencing institutional voting outcomes due to changes with respect to proxy advisory firms due to this decision and recent SEC guidance, creating a perfect storm of lack of direct engagement.
- Regulatory Outlook: The decision introduces uncertainty into the SEC’s broader regulatory agenda and authority, which may prompt renewed focus on alternative fixes including new statutory provisions or frameworks.
These developments underscore the continued importance of proactive shareholder engagement and careful navigation of the SEC’s evolving approach to proxy regulation.
For further information, please contact your regular firm representative or any member of our Securities Regulation or Capital Markets teams.
Additional related materials from Freshfields about the most recent proxy season can be found here.
