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In a Friday appearance on Fox Business, SEC Chairman Paul Atkins signaled that the Securities and Exchange Commission is increasingly focused on curbing the influence of proxy advisory firms. His comments follow reports that the Trump Administration is weighing an executive order aimed at limiting the role of firms such as ISS and Glass Lewis. Responding to questions about the advisors' impact on corporate decision-making, Chairman Atkins noted that concerns persist that these firms wield disproportionate sway over management decisions.
Chairman Atkins stated that the SEC intends to take a comprehensive look at the shareholder engagement ecosystem. He expressed particular concern that passive investors sometimes "get out of line" when attempting to influence management—activity he believes falls outside their intended role. The Commission, he said, plans to review the "whole area" and expects to issue "proposals and clarifications." When asked about the timing of such changes, Chairman Atkins indicated they would be "within the next year."
These comments also follow a February 2025 update to CD&I 103.11 which revised prior guidance on the eligibility to file Schedule 13G. The update states that disqualifying conduct to allow a shareholder to file a Schedule 13G as a passive investor instead of a Schedule 13D may be in the form of exerting pressure on an issuer if it's with the purpose or effect of "changing or influencing control of the issuer." Prior guidance had indicated generally that engagement with an issuer's management team on corporate governance, without more, would not prohibit a shareholder from filing a Schedule 13G.
Looking ahead, companies should expect potential SEC rulemaking or guidance that could narrow the scope of acceptable shareholder engagement and limit the influence of proxy advisors. In the near term, many investors are likely to take a more cautious approach when engaging with management to avoid activity that could be viewed as influencing control.
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