2025 Proxy Season Trends: The Pendulum Swings Toward Management

2024 affirmed the power of the “Big Three” (Vanguard, BlackRock, and State Street), and large, passive investors generally, to influence director elections and corporate governance. Several trends also emerged in 2024 highlighting expanded shareholder access to the corporate machinery: increased familiarity with the universal proxy card (“UPC”) rules, special interest campaigns focused on director elections and M&A, the continued prevalence of ESG proposals, and new means to bring shareholders proposals to a vote, among others. But with the Trump administration back in power, a cooling M&A outlook, and sweeping legal and regulatory changes, the power of large, passive shareholders may be waning. 2025 could be the year management, and activists in some respects, emerge more empowered to tilt the corporate governance playing field in their favor.

I. The Big Three Bolster High-Profile Management Wins in 2024 Proxy Contests

Compared to 2023, management won more clean sweeps at companies with market caps >$1B (“Large Caps”) but dissidents had improved success at companies with market caps <$250M (“Small Caps”). This divergence highlights the continued influence of the Big Three on proxy contests and how dissidents may have learned from their relative failures in Small Cap contests in 2023.

20 proxy contests conducted under the UPC rules at U.S. companies went to a vote in 2024, compared to 17 contests in 2023. Like 2023, the larger the market cap, the more likely the major proxy advisory firms (ISS and Glass Lewis) supported dissidents. However, compared to 2023, dissidents won support from the Big Three at a greater rate at Small Cap contests and received less support at Large Cap contests. Final voting results also improved for dissidents at Small Cap contests but deteriorated at Large Cap contests compared to 2023.

Of the 20 UPC proxy contests in 2024 that went to a vote, 11 were at Small Caps, five at market caps between $250M-$999M (“Mid Caps”) and four at Large Caps. In 2024, ISS recommended for all management nominees in 63.6% of Small Cap contests, 40.0% of Mid Cap contests, and 25.0% of Large Cap contests.  Similarly, Glass Lewis recommended for all management nominees in 70.0% of Small Cap contests, 40.0% of Mid Cap contests, and 25.0% of Large Cap contests. These rates did not materially deviate from ISS’s and Glass Lewis’s recommendations in 2023.

But the Big Three’s voting behavior changed in 2024. In 2024, Vanguard voted for all management nominees in 75.0% of Small Cap contests, 60.0% of Mid Cap contests, and 75.0% of Large Cap contests. BlackRock supported management less often than Vanguard, supporting all management nominees in 50.0% of Small Cap contests, 60.0% of Mid Cap contests, and 50.0% of Large Cap contests. State Street voted “For” all management nominees in 66.7% of Small Cap contests, 60.0% of Mid Cap contests, and 75.0% of Large Cap contests. Compared to 2023, the Big Three voted more often or at the same rate for all management nominees at Large Cap contests: Vanguard – 75.0% in 2024 vs. 25.0% in 2023; BlackRock – 50.0% in 2024 vs. 50.0% in 2023; State Street – 75.0% in 2024 vs. 25.0% in 2023. Conversely, the Big Three voted less often for all management nominees at Small Cap contests: Vanguard – 75.0% in 2024 vs. 100% in 2023; BlackRock – 50.0% in 2024 vs. 100% in 2023; State Street – 66.7% in 2024 vs. 100% in 2023.

Finally, there were more management clean sweeps at Large Cap contests in 2024 (50.0%) compared to 2023 (25.0%), but less management clean sweeps at Small Cap contests in 2024 (63.6%) compared to 2023 (83.3%).

ISS / Glass Lewis Recommendations in Proxy Contests:

2024
Market Cap	<$250M	$250M-$999M	>$1B
ISS Recommendation for All Management Nominees	63.6%	40.0%	25.0%
Glass Lewis Recommendation for All Management Nominees	70.0%	40.0%	25.0%
2023
Market Cap	<$250M	$250M-$999M	>$1B
ISS Recommendation for All Management Nominees	71.4%	60.0%	25.0%
Glass Lewis Recommendation for All Management Nominees	62.5%	40.0%	25.0%

 

“Big Three” Voting Results in Proxy Contests:

2024
Market Cap	<$250M	$250M-$999M	>$1B
Vanguard Votes for All Management Nominees	75.0%	60.0%	75.0%
BlackRock Votes for All Management Nominees	50.0%	60.0%	50.0%
State Street Votes for All Management Nominees	66.7%	60.0%	75.0%
2023
Market Cap	<$250M	$250M-$999M	>$1B
Vanguard Votes for All Management Nominees	100%	60.0%	25.0%
BlackRock Votes for All Management Nominees	100%	60.0%	50.0%
State Street Votes for All Management Nominees	100%	80.0%	25.0%

 

Final Voting Results in Proxy Contests:

2024
Market Cap	<$250M	$250M-$999M	>$1B
Management Clean Sweep %	63.6%	60.0%	50.0%
Dissident Partial Win %	9.1%	40.0%	25.0%
Dissident Clean Sweep %	27.3%	0.0%	25.0%
2023
Market Cap	<$250M	$250M-$999M	>$1B
Management Clean Sweep %	83.3%	60.0%	25.0%
Dissident Partial Win %	0.0%	40.0%	25.0%
Dissident Clean Sweep %	13.7%	0.0%	50.0%

Source: FactSet, Diligent

The 2024 results highlight the Big Three’s considerable influence on proxy contests, particularly at Large Caps where they are among the largest shareholders. Indeed, the Big Three supported only management nominees at The Walt Disney Company and Crown Castle, where all management nominees retained their seats in both contests. At Disney, management succeeded despite ISS’s recommendation in favor of one of the dissident’s nominees. Even at Norfolk Southern, where the dissident gained three seats out of seven targeted, BlackRock was the only Big Three member to vote in favor of any of the dissident’s nominees, and Vanguard’s and State Street’s support for management likely prevented the dissident from gaining additional seats despite ISS and Glass Lewis recommending in favor of five and six dissident nominees, respectively. The Big Three also supported at least one dissident nominee at Masimo, which allowed the dissident to win both seats up for election. It was thus the Big Three, and not necessary the proxy advisory firms, that were the key factor at Large Cap contests.

It is too early to tell if management will continue to succeed at Large Caps contests. 2025 has already delivered an activist win to Mantle Ridge at Air Products, who won three out of four seats and succeeded in replacing Air Products’ CEO. The impact of the SEC’s new Schedule 13D/G guidance, as discussed in the section below, may also significantly impact how the Big Three analyze and vote in future proxy contests, potentially reducing their influence. Finally, activist successes at Small Caps in 2024 could indicate that both the quality of activist and their nominees at Small Caps has improved.

II. New C&DIs Already Chilling Issuer-Investor Engagement

In mid-February, the SEC’s Division of Corporation Finance put institutional investors into a tizzy when it issued new Compliance and Disclosure Interpretations (the “C&DIs”) to Exchange Act Sections 13(d) and 13(g) that could upend years of settled engagement practice.  With its amended response to question 103.11 and new question/answer 103.12, the Division expanded its interpretation of when an investor holds shares with the “purpose or effect of changing or influencing control of the issuer” and therefore forfeits its ability to report its ownership on the less burdensome Schedule 13G.

Reporting ownership positions at multiple portfolio companies on a Schedule 13D would be a logistical nightmare for index funds and other passive investors; Schedule 13D filers must update a filing within two business days to reflect a purchase or sale of 1% or more of the outstanding shares or to reflect any other material change, including a change in investment purpose.  Moreover, Schedule 13D filers must include a list of all transactions in the subject securities within 60 days before the filing.  Onerous Schedule 13D reporting requirements would be practically impossible for the compliance teams at funds that trade multiple issuers’ stocks numerous times a day.  In contrast, investors must amend short-form Schedule 13Gs 45 days after the end of a quarter when a material change occurred or within two business days after the investor acquires more than 10% of the outstanding shares.

The prior answer to 103.11, issued in July 2016, gave institutional investors greater latitude to discuss with issuers their executive compensation and ESG policy preferences (and the voting ramifications if an issuer ignored such preferences) while remaining eligible to report their ownership on Schedule 13G.  In the 2016 C&DI, the Division included a bright—nay, florescent—line as an example of when an investor otherwise eligible to file a Schedule 13G would be required to file a Schedule 13D.  A Schedule 13D filing was required if an investor called for the sale of the issuer or a significant amount of the issuer’s assets, the restructuring of an issuer, or a proxy contest.  Under the prior interpretation, institutional investors felt comfortable expressing their views on a myriad of ESG topics, even warning portfolio companies that they may vote against the issuer’s director(s) because the issuer did not conform to the investor’s view of best practices.  While the new C&DI stated that a shareholder who discusses with management its views on a particular topic and “how its views may inform its voting decisions, without more” may still be eligible to report on a Schedule 13G, it also states that Schedule 13G may be unavailable to an investor that pressures an issuer by “explicitly or implicitly” (italics added) conditioning its support of an issuer’s directors on the issuer adopting the investor’s preferred corporate governance, executive compensation or ESG policy.

Presumably as intended, following the release of these C&DI amendments, many large institutional investors revamped their proxy voting policies and/or engagement practices.  Following the C&DI amendments and President Trump’s anti-DEI executive orders, BlackRock and Vanguard broadly retreated from prior stances promoting Board diversity.  State Street’s voting policy now includes a preamble specifying that it does not seek to change or influence control of any of its portfolio companies; lest anyone miss it, the statement is repeated no less than four times.  State Street also removed boardroom diversity quotas and deleted prescriptive guidelines, muddying its previously unambiguous language about “support[ing]” specific policies with awkward semantic contortions that refer to the investor’s “belie[fs]” and are premised on an issuer’s identification that a specified ESG topic is material to the issuer’s business.  Likewise, ISS announced that it will “indefinitely halt consideration” of racial and ethnic diversity in making vote recommendations with respect to directors at U.S. companies.  Glass Lewis took a more balanced approach, stating that it will still make recommendations against directors for lack of sufficient boardroom diversity, but will also include counterarguments in its recommendations to provide clients an alternative rationale to vote for directors and avoid political risks.

The C&DIs and the Trump administration’s anti-DEI offensive will chill crucial investor-issuer engagement.  Once an open exchange of views, engagement between issuers and large investors threatens to become a pre-scripted conversation or a passive listening session, missing the candor and ‘give and take’ that allowed issuers and investors alike to make informed corporate governance decisions.  BlackRock and Dimensional now open issuer engagements by reading a disclaimer that they do not seek to change or influence control at any portfolio company.  Certain passive institutional investors will no longer proactively reach out to issuers to raise concerns; indeed, even when issuers approach such investors to engage, the investor may not focus the conversation on particular agenda items but leave it to the issuer to guess what topics the investor might find helpful to discuss.   Institutions will no longer disclose votes against director(s) in advance of the election, but also may not explain the rationale for an “against” vote after the meeting concluded if the issue persists.

The new C&DIs and other anti-ESG initiatives may have unintended impacts. They may result in index funds changing their pro-management voting practices because they do not limit any discussions between activists and other investors.[1] The asymmetric nature of these C&DIs could erode the bulwark of index funds and other large, passive institutional investors that historically supported the Board’s nominees in proxy contests.  The C&DIs could also limit horse-trading and frank conversations with the Big Three and other index funds that help issuers limit the number of dissident directors elected.  Even if the issuer decides to settle, any informational advantage an activist could gain by having more substantive discussions with index funds could bolster their leverage at the negotiating table. The C&DIs also create the bizarre dynamic where issuers can still have forthcoming discussions with their smaller, less influential shareholders (<5% holders), but not those with the greatest voting power and economic interest (>5% holders).

Investors may also disperse their voting power to limit exposure to these new interpretations. BlackRock’s stewardship team will now only control the vote of shares held in its passive index funds; actively managed funds will be voted by their respective PMs who will presumably focus less on governance and more on performance, thereby minimizing the effect of BlackRock stewardship’s governance-focused vote. The Big Three and other index funds heeding political pressure continue ramping up pass-through voting, allowing individual holders within pooled funds the ability to choose a voting policy independent of the stewardship team that will apply to their pro-rata share of the underlying equities held by the fund. To date, there has not been an enormous amount of uptake from retail investors, but if uptake increases, pass-through voting has the potential to further erode index funds’ reliably management-friendly vote.  Could these trends portend more activist successes at the ballot box in 2025 and beyond?

Amidst these potentially sweeping changes, the regulatory mechanism to enforce violations of the C&DI amendments is unclear.  Presumably, the only parties that will be aware of foot-fault (or larger) violations are issuers and the investors themselves; we cannot imagine an issuer reporting an investor to the SEC for such an infraction (investors have long memories aided by internal databases with detailed engagement notes that span years).  Even if an issuer reported violations, the Trump administration recently stripped the SEC’s enforcement staff of its ability to issue formal orders and launch investigations, including subpoenas, without the Commission’s approval.

III. 14a-4 Solicitations Gain Prominence

In our last article for these pages, we noted a new activist tactic in the first half of 2024 – the use of SEC Rule 14a-4 to solicit support for shareholder proposals, rather than Rule 14a-8. The Rule 14a-4 process confers several advantages: the proposal is not subject to exclusion by the issuer; there is no limit to the number of proposals a shareholder can submit; and there is no word limit for the shareholder’s supporting statement.

The primary disadvantage of the Rule 14a-4 process is that a proponent must pay to send its proxy materials to holders of at least a majority of the voting power (assuming they are not soliciting on behalf of any director nominees), a requirement thought to impose a significant financial burden. However, in one instance last year, a 14a-4 proponent used notice and access for an estimated $15,000 dissemination cost. Particularly for companies with a relatively concentrated shareholder base where notice and access is available, the costs of a 14a-4 solicitation could be significantly cheaper than previously thought. Recent changes to SEC staff guidance with respect to 14a-8 proposals under the Trump administration may also make Rule 14a-4 more attractive to shareholders.

This past Fall the well-known activist Starboard Value launched a Rule 14a-4 solicitation in support of its proposal at News Corp to combine the company’s class of voting stock and its class of non-voting stock into one class of stock with one vote per share.  The Murdoch family controls approximately 41% of the voting power at the company.

While the proposal failed (although it appears that a majority of non-affiliated shareholders supported it), the publicity surrounding the contest, particularly with respect to the unorthodox use of Rule 14a-4 and possible SEC regulatory changes, make it likely that such solicitations will be more common in future.

IV. Diminished Outlook for M&A Activism in 2025

Following Donald Trump’s election, a common view among market participants was that M&A would drive a significant increase in activism in 2025. M&A activism in the second half of 2024 seemed to be a leading indicator, increasing from a slow start in the first half, but increasing significantly in the second half to reach typical historic levels for the full year.

Leading factors supporting the view that dealmaking would increase this year were: declining interest and inflation rates; likely relaxation of regulatory strictures; significant private equity dry powder and pressure to sell sponsor portfolios with significantly longer than usual holding periods; and pent-up demand by strategics to make value enhancing deals. In a robust M&A market, there are more opportunities for activists to pressure companies to sell or to oppose transactions they disapprove.

Recent events driving significant uncertainty have tempered that view, however, at least with respect to the first half of 2025.  While the interest rate environment is more favorable than in 2023 and the first half of 2024, long-term rates have been increasing recently and inflation may be again on the rise, causing concern that the Fed will not cut rates as aggressively in 2025 as had been previously thought.  While it is likely that the Trump administration will step back from the aggressive antitrust posture of the previous administration, particularly its tendency to block transactions outright rather than seek other remedies, recent regulatory actions have clouded the prospects of a rosy M&A environment in 2025.

The Trump administration’s shifting statements on tariffs and consequent fears of trade wars have spooked the markets and contributed to growing concerns of a recession.  Immigration crackdowns have also caused concern about potential labor shortages, particularly at agricultural, healthcare, construction and hospitality companies.  Companies requiring highly skilled non-U.S. employees may also be at risk. In addition, faced with so many uncertainties, companies may eschew strategic growth in favor of continuing to focus primarily on operational challenges.

As a result of the factors described above, combined M&A activity in January and February of this year was the slowest in many years, despite a strong start in early January.  The general view of practitioners at the recent Tulane M&A Conference, however, was optimistic for the long-term – current uncertainties are causing a temporary chill but dealmaking in the second half of the year should be strong.[2]

While the current environment may not foster activism to sell companies, spin-offs and other divestitures (“shrink to grow”) should continue to be a leading activist agenda at undervalued companies with portfolio complexity or sub-optimal capital allocation. Recent examples include Honeywell’s planned breakup into three separate companies (encouraged by Elliott Investments) and Beckton Dickinson’s planned spin-off of its biosciences and diagnostics business (encouraged by Starboard).

V. Delaware Law Amendments Insulate Management from Shareholder Oversight

Amending the Delaware General Corporation Law (“DGCL”) is typically an uncontroversial affair. Not so with its most recent amendments (enacted and proposed). These amendments could provide controlling shareholders with greater influence over the Board, management, and governance of Delaware corporations and shift governance power from passive investors to management and, in some cases, activist investors.

DGCL amendments enacted in 2024 were in response to W. Palm Beach Firefighters’ Pension Fund v. Moelis & Co. There, the Chancery Court invalidated certain provisions of a stockholder agreement between a company and its controlling stockholder that restricted the Board from taking certain actions and granted the controller director nomination rights and veto rights over Board decisions. The Chancery Court deemed these provisions in aggregate to violate the Board’s authority to manage the company’s business and affairs under DGCL Section 141(a). Such a broad transfer of power was only allowed if permitted under the corporation’s charter. For most publicly-held companies, this would require proposing a charter amendment, providing fulsome disclosure to stockholders, and then stockholder approval by a majority of the outstanding voting power. Stockholders would thus have the ultimate say in whether to sanction a deviation from Delaware’s default Board-centric governance principles.

Swiftly following the Moelis decision, before the Delaware Supreme Court could hear an appeal, the Delaware government enacted new DGCL Section 122(18). Section 122(18) purported to restore the pre-Moelis status quo by authorizing corporations to transfer powers typically within the Board’s authority under Section 141(a) to current or prospective shareholders. These powers include the ability to restrict Board actions, pre-approve Board actions, and require the Board to agree to take (or not take) specified actions.

On February 17, 2025, the Delaware legislature proposed additional amendments (“SB 21”) that would upend precedent governing controller transactions as well as books and records demands under DGCL Section 220. On March 10, 2025, the Council for the Corporation Law Section of the Delaware State Bar Association (“DSBA”) approved proposed revisions to SB 21 and a substitute bill including such revisions were introduced in the legislature on March 12, 2025.

The most significant proposed changes include:

• Limiting MFW’s Application:
  • As recently affirmed in In re Match Group (“Match Group”), all transactions where a controller receives a non-ratable benefit must satisfy the conditions set forth in Kahn v. M&F Worldwide (“MFW”) to avoid entire fairness review, which include (1) the approval of an independent special committee, (2) the approval of unaffiliated stockholders, and (3) conditioning the transaction ab initio on the forgoing conditions.
  • SB 21 would only require the approval of both an independent special committee and the unaffiliated stockholders for take-private transactions. Any other transaction that the controller has a material interest could be satisfied by either cleansing mechanism. Furthermore, SB 21 would eliminate the requirement to condition any transaction, including take-privates, on these cleansing mechanisms ab initio before substantive negotiations begin.
• Easing Independence Criteria:
  • Under Match Group, a special committee must be fully composed of independent directors. SB 21 would only require a majority of the special committee to be independent.
  • As it stands, Delaware courts typically make an exacting, fact-intensive inquiry to determine if a director is independent from a controller. Under SB 21, directors are presumed independent if the Board determines that such directors satisfy the independence standards set forth by the national securities exchange on which the company is listed (e.g., NYSE or Nasdaq).
• Limiting Who is a Controlling Stockholder:
  • Under current law, controlling stockholders can be holders of less than 50% voting power if a court finds they exert control over a company or a transaction. Courts have held that stockholders with voting power as low as 21% are controllers, as was the case with Elon Musk in the Tornetta v. Musk pay-package case.
  • SB 21 would create a one-third voting power bright-line, under which a stockholder is presumptively not a controller.
• Reducing the Voting Standard for Unaffiliated Stockholder Votes:
  • MFW requires a majority of the outstanding shares held by unaffiliated stockholders approve a controller transaction.
  • SB 21 would reduce the voting standard to require a majority of the votes cast, an easier standard because it excludes abstentions and votes not present from the denominator.
• Limiting Obtainable Books and Records:
  • Under current Section 220 precedent, shareholders can receive emails, text messages or other communications and records where typical corporate records are insufficient.
  • SB 21 would limit books and records requests to certificates of incorporation, bylaws, minutes, D&O questionnaires, and other enumerated corporate records absent showing a compelling need to further the purpose of the inspection and demonstrating clear and convincing evidence that such additional records are “necessary” and “essential” to further such purpose.

Much ink has been spilled on Section 122(18) and SB 21’s normative implications on corporate law and policy, but what about their impact on shareholder activism?

The post-Section 122(18) activism landscape is superficially no different than before. Companies can continue to settle with activists to avoid proxy contests in exchange for Board seats, committee assignments, forming strategic committees, reimbursing the activist’s expenses, etc. But Section 141(a)’s mandate of Board-centricity always threatened an outer limit on the powers Boards could relinquish in such settlements. With Section 122(18), activists may now have more leverage to demand even greater concessions in settlement negotiations. Section 122(18) also affirms a policy to sanction, even encourage, settlements to resolve proxy contests. This policy empowers management, providing an off-ramp where shareholders might otherwise vote them out of office, and activists, who now have a clear roadmap to obtain influence over the Board, while disempowering other shareholders, particularly large, passive stockholders, whose influence is greatest at the ballot box. While this does not eliminate such shareholders’ influence on settlement negotiations, a legal regime where shareholder votes on proxy contests are less likely to occur diminishes their power.

SB 21’s changes would similarly undercut shareholder power while increasing controller and managerial power. A controller transaction (if not a take-private) can now avoid entire fairness review if approved by a majority independent special committee where independence is determined by the Board under (less-exacting) stock exchange standards. Controllers and Boards would likely prefer this alternative than risk a stockholder vote to cleanse the transaction; even if a vote is pursued, it would be easier to pass under a votes-cast standard. These changes could remove shareholders from the cleansing process entirely or materially diminish their influence, potentially hindering transaction-specific activism and shareholder oversight over controller self-dealing.

SB 21 also incentivizes controllers to use Section 122(18)-sanctioned shareholder agreements to avoid controller-status altogether. As mentioned above, reallocating corporate governance powers usually requires amending the charter and approval of the majority of the outstanding voting power. But under SB 21, stockholders who hold less than one-third voting power can use shareholder agreements to allocate powers to themselves without input from other shareholders. Taken to the extreme, a 30% stockholder with Moelis-like powers via a stockholder agreement would not be a controller. Any transactions between such “non-controller” and the company, including any shareholder agreement, would likely be subject only to business judgment review. Under such circumstances frustrated shareholders could feel their only meaningful recourse is selling their shares on the open market.

SB 21’s impact on Section 220 books and records demands also could curb shareholder oversight. Shareholders will likely find it difficult to obtain relevant records from companies in light of the difficulty proving with clear and convincing evidence that such records are “necessary” and “essential” to further their purpose for inspection. Where companies were previously incentivized to keep accurate and substantive official records (or risk a court order to turn over potentially embarrassing records like texts and emails among directors), SB 21 also reduces (although doesn’t eliminate) the Board’s incentive to maintain the quality of the limited books and records they would be required to relinquish. This could hamper efforts to discover managerial misconduct or malfeasance and reduce activism generally.

Conclusion

The myriad changes to legal, regulatory, and market outlooks in 2025 have the potential to primarily benefit management at the expense of the Big Three and other passive index funds. But what if the Big Three does not support management at the same rate as in 2024? Will these changes risk increasing the cost of capital for issuers? Could activists now wield additional influence in proxy contexts and settlement discussions (thanks to the asymmetries created by the new C&DIs) and shareholder proposals (thanks to 14a-4 campaigns)? We’ll see where the pendulum swings next.