Recent shifts in regulatory scrutiny, proxy-advisor guidelines, and institutional-investor practices are reshaping how boards, investors, and insurers navigate the governance risks associated with proxy advisor practices. These developments take on particular significance as companies head into the 2026 proxy season. In the following guest post, Sarah Abrams takes a look at these proxy advisory-related practices developments and considers their significance. My thanks to Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.
********************************
The proxy-advisory ecosystem that has shaped U.S. corporate governance and D&O litigation risk appears to be undergoing a shift. Three recent developments, taken together, suggest that boards and D&O underwriters may be entering a more volatile and less predictable governance environment: the president’s December 11, 2025 Executive Order expressly targeting proxy advisory firms’ influence; the release of both Glass Lewis’s and ISS’s 2026 U.S. Benchmark Policy Guidelines, which refine and in some areas expand governance expectations; and the January 2026 statement by JP Morgan that it will no longer rely on proxy advisory firms for U.S. voting decisions, opting instead to use a proprietary, AI-driven voting platform.
The following will discuss how shifting proxy dynamics may affect board governance practices, investor voting behavior, and the assessment of governance-related risk by D&O insurers as the 2026 proxy season approaches.
The SEC Weighs In
On January 8, 2026, in remarks delivered by SEC Investment Management Director Brian Daly, the evolving role of proxy advisory firms and proxy voting practices took center stage. Daly offered a candid account of how modern proxy voting practices evolved: he traced today’s “vote all proxies” norm to decades of fiduciary framing, starting with the Department of Labor’s 1988 “Avon Letter” and continuing through the SEC’s 2003 proxy voting rule, arguing that what began as a commonsense conflicts principle gradually hardened into industry-wide default settings. Daly then stated that this environment created an opening for proxy advisory firms to expand beyond limited-scope research into end-to-end proxy-voting “solutions,” including recommendations that can function as de facto “industry-wide fiats.”
Notably for public companies, directors and officers, Daly acknowledged that the SEC itself may have contributed to proxy advisory firms being treated as a “de facto regulatory safe harbor,” including through now-withdrawn no-action letters that suggested advisers could “outsource” voting duties to address conflicts. Daly framed the current moment as an “opportunity to reset” and posed two foundational questions he said many advisers are asking: (1) Must I vote client proxies? and (2) If I vote, can—or must—I still use a proxy advisor?
While Daly’s remarks point to a regulatory “reset” grounded in fiduciary process and historical evolution, the Trump administration’s December 2025 Executive Order reflects a more direct and adversarial response to the perceived power of proxy advisory firms.
The Executive Order
President Trump’s EO asserts that proxy advisors wield outsized influence over corporate governance matters, including director elections, executive compensation, and shareholder proposals, and accuses them of advancing politically motivated agendas, particularly around ESG and DEI. The EO calls on federal agencies to evaluate whether proxy advisory firms’ practices are consistent with investor-protection and fiduciary principles.
For D&O purposes, the significance of the Executive Order may be less about immediate regulation, in line with SEC director Daly’s commentary, and more about litigation narrative. As D&O readers are aware, claims alleging that boards prioritized “ideological” initiatives over shareholder interests are increasingly reflected in complaints and demand letters. The President’s EO may legitimize that legal framing, increasing the risk that governance decisions will be second-guessed in hindsight through a political lens.
Although the EO casts proxy advisory firms in more political terms, and the SEC is reexamining the historical assumptions underlying proxy voting practices, proxy advisory guidelines, for now, remain visible and widely understood benchmarks for assessing board accountability, disclosure quality, and risk oversight. Against this backdrop, the Glass Lewis 2026 Benchmark Policy Guidelines provide a useful lens through which to examine how evolving governance expectations may intersect with shareholder voting behavior and governance-based litigation risk.
Glass Lewis 2026 Benchmark Policy Guidelines
Glass Lewis is a proxy advisory firm and was founded in 2003, the same year as the SEC’s proxy voting rule was created. Glass Lewis’ Benchmark Policy Guidelines are annually published governance standards that explain how Glass Lewis evaluates corporate governance issues and formulates proxy voting recommendations for U.S. public companies.
Essentially, the Guidelines are meant to function as a rulebook for proxy analysis, are not binding, but may influence institutional investors’ assessment of boards and shareholder votes. Compared to its 2025 Guidelines, Glass Lewis’s 2026 version places increased emphasis on demonstrable board oversight, particularly where companies face material operational, regulatory, or reputational risks.
For 2026, Glass Lewis signaled a greater willingness to recommend against directors following significant adverse events in which proxy disclosures suggest boards acted only after issues arose, or in which disclosures fail to clearly link board oversight processes to risk management outcomes. From a D&O underwriting perspective, this focus aligns with the fact patterns commonly alleged in Caremark-style oversight claims, where plaintiffs contend that boards failed to implement or adequately monitor critical compliance and risk-management systems.
The 2026 Guidelines also continue to disfavor governance mechanisms perceived as entrenching management, including certain supermajority voting provisions and defensive structures. Compared to 2025, the tone is more explicit in tying these structures to negative voting recommendations. For companies with dual-class stock or other atypical governance features, this increases the likelihood of shareholder challenges framed as fiduciary-duty failures, rather than mere policy disagreements.
ISS 2026 Benchmark Policy Updates
In addition to Glass Lewis’s updated policies, Institutional Shareholder Services (ISS) has also released its 2026 U.S. Proxy Voting Guidelines. ISS’s revisions continue to emphasize board accountability in the face of material risk oversight failures and refine its approach to director elections where companies experience significant operational or compliance breakdowns. Like Glass Lewis, ISS signaled heightened scrutiny of boards following adverse events and maintained its critical stance toward governance structures viewed as insulating directors from shareholder accountability.
For D&O purposes, the convergence of Glass Lewis and ISS on enhanced oversight expectations reinforces the risk that governance disclosures will be evaluated not merely for formal compliance, but for demonstrable linkage between board processes and risk outcomes.
Discussion
In January 2026, JP Morgan announced that it would discontinue the use of proxy advisory firms for U.S. voting decisions and instead deploy a proprietary, AI-driven voting platform to analyze corporate meeting data and inform voting outcomes. Whether this decision will be replicated across the institutional asset-management industry remains to be seen. In the meantime, proxy advisory firms are likely to continue issuing annual guidance, even as their relative influence may fragment.
In the wake of the Trump administration and the SEC weighing in on proxy advisory firms, at least one large institutional asset manager has announced that it will no longer use proxy advisory firms for U.S. voting decisions, opting instead to deploy a proprietary, AI-driven system to analyze corporate meeting data and inform voting outcomes. Whether this decision will be copied by the marketplace remains to be seen. In the meantime, proxy advisory firms will likely continue to issue yearly guidance.
From a D&O underwriting perspective, this combination of stricter proxy-advisor standards and fragmented voting methodologies may create an emerging risk. Boards may have historically treated alignment with proxy advisory guidelines as a form of soft governance safe harbor, reducing the risk of investor backlash and litigation. If significant shareholders instead ignore proxy advisories and apply bespoke or opaque analytical frameworks, the safe harbor can erode. Perhaps, moving forward, a board may comply fully with published proxy guidelines and still face opposition, activism, or litigation from investors applying materially different criteria.
A further consequence of backing away from proxy advisory firm guidance is that governance compliance can no longer function as a check-the-box exercise. If governance evaluations diverge, the risk that proxy disclosures will be challenged as misleading may increase, not because they violate proxy-advisor standards, but because they fail to anticipate how different investor groups assess oversight, performance, and risk.
Greater variability in voting outcomes may also elevate derivative litigation risk, particularly following adverse operational or financial events. In this environment, D&O underwriters may want to place greater emphasis on how boards document oversight processes and respond to emerging risks, rather than on formal adherence to any single set of governance benchmarks.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This site is not affiliated with the author’s company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter