Companies should be aware of certain regulatory and advisory developments while preparing annual reports and proxy statements for the upcoming 2026 Proxy and Annual Reporting Season. Although disclosure requirements have not changed significantly since last year, the SEC has released guidance hinting at potential upcoming changes. Below are some of the recent regulatory and advisory developments from the Securities and Exchange Commission (“SEC”) and Nasdaq Stock Market LLC (“Nasdaq”) in addition to voting guidelines from proxy advisory firms Institutional Shareholder Services Inc. (“ISS”) and Glass, Lewis & Co. (“GL”) to consider this reporting season.
Regulatory Developments Affecting Annual Reports and Proxy Statements
Shareholder Proposals
The SEC under Chairman Paul Atkins released guidance that will make it easier for companies to exclude shareholder proposals from their proxy materials, and according to the SEC’s regulatory agenda, the SEC is expected to propose additional rules in this area this spring.
In February 2025, the Division of Corporation Finance (“Division”) issued Staff Legal Bulletin No. 14M, which rescinded guidance provided under the previous administration and effectively lowered the burden for companies seeking to exclude shareholder proposals under the “economic relevance” or “ordinary business” exclusions under Rule 14a-8(i) of the Securities Exchange Act of 1934 (the “Exchange Act”).
The “ordinary business” exclusion allows a company to exclude a shareholder proposal if it deals with the company’s ordinary business operations and if allowing the proposal would have the effect of “micromanaging” the company unless the subject matter would raise policy issues so significant that they should be resolved by shareholders. Under the new guidance, the Division clarified that the staff will evaluate significance on a company-specific instead of universal basis. Accordingly, shareholder proposals aimed at promoting broad societal impact are less likely to be required to be included in a company’s proxy materials.
The “economic relevance” exclusion allows a company to exclude a shareholder proposal if the subject matter (i) accounts for less than 5% of the company’s total assets, gross sales, or net earnings and (ii) is not otherwise significantly related to the company’s business. Under the new guidance, whether a matter is significantly related to the company is a company-specific question dependent on the total mix of information about the company, and the Division staff would evaluate this separately from the significance evaluation in the “ordinary business” exclusion. This means that, under the new guidance, a proposal could be excluded for economic irrelevance even if it was not eligible to be excluded under the ordinary business exclusion.
In addition, the Division announced that for the upcoming proxy season, the staff will generally not respond to no-action requests about excluding shareholder proposals from proxy materials under Rule 14a-8. See our LEGALcurrents, Significant Change for Shareholder Proposals This Proxy Season, for more information relating to this announcement.
Smaller Reporting Company Status
In August 2025, the SEC published C&DI 130.05, which adds a transition period for companies that previously qualified as smaller reporting companies. For background, a company’s filer status is determined annually on the last business day of the second fiscal quarter. A company can qualify as a smaller reporting company (“SRC”) if it has a public float of less than $250 million (“public float test”) or if it has (i) annual revenues of less than $100 million for the most recently completed fiscal year and (ii) either no public float, or a public float of less than $700 million (“revenue test”).
Let’s use an example to clarify this transition period. In our example, a company with a fiscal year that ended December 31, 2025 tested its filer status on June 30, 2025. On that date, its public float was $800 million and its annual revenue for 2024 was $105 million; in other words, it failed the SRC revenue test.
Under the new C&DI, this company does not automatically become an accelerated filer at December 31, 2025. Instead, it will be classified as a non-accelerated filer for filings in 2026 and become an accelerated filer at December 31, 2026. Under the new C&DI, the company can even rely on the scaled SRC disclosure until its Form 10-Q for the quarter ending March 31, 2026, a welcome relief to companies transitioning from SRC status.
Risk Factors
Companies should reevaluate their risk factors to determine whether anything needs to be changed, added, or removed. There have been a number of changes in the last year as it relates to global conflicts, international economic relations, changes in inflation and interest rates, changes in U.S. federal law, such as immigration enforcement, and the widespread adoption of artificial intelligence, to name a few, that might call for additional risk factors to be added. Keep in mind that risk factors may lose their “disclosure insurance policy” effect if a company discloses hypothetical risks when the company is actually facing those risks. This element of updating Form 10-K disclosure is one key reason to ensure a multidisciplinary team reviews the disclosure.
Nasdaq-listed companies at risk of losing compliance with Nasdaq’s continued listing standards should consider whether to include additional risk factors relating to this risk. In the last year, Nasdaq has created more strict listing requirements, as most recently discussed in our LEGALcurrents, Nasdaq Proposed Rule Will Accelerate Delisting for Companies That Fail to Meet the $0.10 Low Price Requirement. Companies should analyze whether they will be affected by the more stringent listing standards adopted by Nasdaq in the past few years and consider whether additional risk factor disclosure would be appropriate.
EDGAR Next
In 2025, the SEC introduced EDGAR Next. As discussed in our LEGALcurrents, What’s EDGAR Next? Do I Need to Care? and Forget Campfire Stores—EDGAR Next Enrollment Is the Real Summer Thriller, the transition to EDGAR Next began in March and the use of it became mandatory on September 15. However, due to enrollment delays as a result of SEC backlogs in reviewing amended Form IDs and enrollments, as well as the deactivation of legacy filing access codes on September 15, 2025, some filers were unable to file timely reports, such as Form 3s and Form 4s.
As in prior years, Regulation S-K Item 405 requires disclosure of any known failures to file timely Forms 3, 4 or 5 during the most recent fiscal year under the heading “Delinquent Section 16(a) Reports.” This rule unfortunately applies even when the failure to timely file was unintentional or as a result of transitioning to EDGAR Next. Take care to evaluate whether any Section 16 reports were filed late, and if so, identify the reporting person, the number of late reports, and the number of transactions reported late.
California Climate Risk Reporting – On Hold
As further discussed in our LEGALcurrents, CARB Issues Proposed SB 253 and SB 261 Climate Related Disclosure Regulations, the California Air Resources Board released proposed regulations on December 9th for California’s SB 253 and SB 261, which require certain companies doing business in California to disclose greenhouse gas emissions and climate‑related financial risks. The proposal clarifies key elements, including updated definitions of “revenue” (now aligned with “gross receipts”) and “doing business in California,” new reporting deadlines for Scope 1 and 2 emissions beginning in 2026, five‑year recordkeeping obligations, penalty structures of up to $500,000 per year under SB 253 and $50,000 under SB 261, and several exemptions for categories such as government‑owned entities, nonprofits, insurers, payroll‑only entities, and wholesale electricity traders. The regulations have entered a 45‑day public comment period as of December 26, 2025, and arrived amid a Ninth Circuit injunction temporarily halting enforcement of SB 261 while the court reviews First Amendment challenges to both laws. The court’s differing treatment of SB 253 and SB 261 suggests it may distinguish between compelled factual data disclosures and compelled narrative risk reporting, and the January 9, 2026 oral arguments may shape how much discretion companies retain in crafting climate‑risk narratives. Further changes to the regulations remain possible as the appeal and comment process continues.
Impact of Executive Orders on Disclosure
While many companies with calendar year-ends adapted their public disclosure in real time in early 2025 as new executive orders were issued that intended to reduce discrimination in workplaces, companies should take the opportunity to revisit public disclosure about their employee programs again this year. As our Labor and Employment colleagues highlighted last year in the “Workplace Impact of New Executive Orders Concerning DEI and Other Non-Discrimination Efforts” morning briefing, employers need to take care to comply with existing federal law while adapting to other changes at the federal, state and local levels. Given the possibility of policies being revisited in 2025, companies should make sure their public disclosure across channels is consistent with their current policies.
Section 16 Reporting Requirements Soon to Apply to Foreign Private Issuer Insiders
Starting March 18, 2026, under the new Holding Foreign Insiders Accountable Act, officers and directors of foreign private issuers (“FPIs”) with securities registered under Section 12 of the Exchange Act must file beneficial ownership reports like domestic issuers. FPI insiders have historically been exempt from these reporting obligations. Notably, this change only applies to officers and directors, not 10%+ beneficial owners of an FPI, and FPI insiders will still be exempt from the short-swing profit and short-sale rules that apply to domestic company insiders. While the SEC is expected to issue rules regarding this change before it becomes effective, FPIs should start preparing for this new reporting obligation soon. Officers and directors will need to obtain EDGAR codes before their first Form 3s are due on March 18, 2026.
Voting Policy Updates
Institutional Shareholder Services (“ISS”) and Glass Lewis (“GL”) have updated their proxy voting policies for 2026. The ISS updates will only apply for meetings on or after February 1, 2026. Updates for this year generally added more flexibility, which was expected given the current climate of legal challenges and investigations of ISS and GL by state governments and a recent executive order requiring the SEC to essentially reconsider how federal securities laws should apply to proxy advisory firms.
In addition to the annual updates, GL also announced that it will not publish a benchmark proxy voting guidelines in 2027, but will instead provide a suite of tailored, customized voting policies for its clients. Given the changes in this area, it is becoming increasingly important for public companies to understand the concerns and voting policies of their top shareholders in addition to the benchmark voting guidelines from ISS and GL.
2026 ISS Updates
Unequal Voting Rights
ISS will treat common stock the same as preferred stock if it has unequal voting rights. ISS will generally recommend votes against proposals to create a new class of stock with voting rights superior to typical common stock unless the company discloses a compelling rationale for the dual-class capital structure. ISS indicated that it may make exceptions to the negative voting recommendation if the shares are convertible into common shares and voting power is based on an “as converted” basis prior to conversion, or the enhanced voting rights of the shares have limited duration and applicability, such as where they are intended to overcome low voting turnout and ensure approval of a specific, non-controversial agenda item, and used mirrored voting. Companies that are considering adding a class of super-voting stock to overcome low turnout at shareholder meetings should take a close look at the updated policy while determining the rights and preferences of the new stock.
Pay For Performance Evaluation
ISS extended its timeline when evaluating pay for performance metrics. ISS will now measure CEO relative pay alignment and financial performance against a peer group over a five-year period instead of three. In addition, ISS will assess the multiple of the CEO’s relative pay to peer group median period for one- and three-year periods instead of the most recent fiscal year. ISS indicated that the change helps ISS assess pay-for-performance over a longer time horizon.
Time-Based Equity Awards
In evaluating the equity pay mix, ISS will consider time-based equity awards with longer vesting and/or retention requirements that demonstrate a long-term focus. ISS indicated that the change will provide for a more flexible approach when evaluating the equity pay mix in a pay for performance qualitative review. Further, ISS reiterated that it would continue to evaluate equity awards on a qualitative case by case basis, taking into account company-specific factors and circumstances.
Board Responsiveness to Low Say-on-Pay Support
ISS updated its guidelines for evaluating board responsiveness to say-on-pay proposals to address cases where a company has disclosed meaningful efforts to engage with shareholders but was ultimately unable to receive feedback. The ISS update provides that when a company seeking to demonstrate responsiveness to low support for a say-on-pay proposal discloses meaningful shareholder engagement efforts but is unable to obtain meaningful shareholder feedback, ISS will assess the company’s actions taken in response to the low support for a say-on-pay proposal and the company’s explanation as to why such actions benefit shareholders. Factors ISS will consider include whether the issues raised are recurring or isolated, the company’s ownership structure, significant corporate activity, and other compensation actions or factors relevant to assessing board responsiveness. ISS reiterated that it would vote on a case-by-case basis when evaluating compensation committee members when the company’s say-on-pay received the support of less than 70% of the votes cast.
Problematic Non-Employee Director Compensation Practices
ISS will provide a negative recommendation in situations where a pattern of excessive or otherwise problematic non-employee director (“NED”) pay emerges across consecutive or non-consecutive years. ISS will generally vote against members of the board committee responsible for approving or setting the NED compensation unless the company discloses compelling reasons or mitigating factors. ISS indicated that it views problematic NED pay to include particularly large NED pay (as measured relative to industry peer medians), NED pay that exceeds the company’s executive officers, performance awards, retirement benefits, and excessive perquisites, and inadequate disclosure or lack of clear rationale for such NED payments. However, ISS noted that if NED pay only marginally exceeded the industry median without other factors or patterns, ISS will issue a warning without an immediate adverse vote recommendation.
Equity-Based and other Incentive Plans
ISS updated the equity plan scorecard (“EPSC”) framework used to evaluate proposals to approve new or amended equity-based compensation plans. The updates include a new factor for whether the plan includes cash denominated award limits for non-employee directors. ISS indicated that the new award limit factor will only apply to the S&P 500 or Russell 3000 EPSC models for 2026.
ISS also introduced a new negative overriding factor in cases where an evaluated plan obtains an overall passing score despite receiving very poor or zero “plan features” pillar scores. In these situations, ISS will recommend “against” votes if the company is found to be lacking sufficient positive features. ISS noted that the overriding factor will only apply to S&P 500, Russell 3000 and non-Russell 3000 EPSC models in 2026.
Social and Environmental Proposals
ISS revised its guidelines to provide for a case-by-case evaluation of social and environmental shareholder proposals. This is a departure from ISS’s previous approach to generally recommend voting for such proposals.
2026 Glass Lewis Updates
Mandatory Arbitration Provision
GL has expanded its list of “highly restrictive” governance provisions to include mandatory arbitration provisions. If boards approve governing documents containing these highly restrictive provisions in connection with an initial public offering, spin off or direct listing, GL may recommend voting against governance committee members. Further, unless the company provides sufficient rationale or disclosure, GL will generally recommend voting against any bylaws or charter amendment seeking to adopt a mandatory arbitration provision.
Pay-for-Performance Methodology
GL updated its benchmark policy guidelines for 2026 to enhance its proprietary pay-for-performance model. The updated GL model will now provide for a scorecard-based approach consisting of six tests instead of the prior letter grade option. Each test will receive a score ratio of 0 to 100 which will be aggregated on a weighted basis. Detailed information on the new test can be found here.
As mentioned above, GL announced that it will stop offering its standard proxy voting guidelines starting in 2027, and will instead switch to a differentiated, client-specific voting framework.
Shareholder Rights
GL clarified its benchmark policy to reflect that it will recommend voting against the chair of the governance committee or the entire committee, when a board amends its governing documents to reduce or remove shareholder rights. GL indicated that those amendments that limit the ability for shareholders to submit shareholder proposals, limit the ability of shareholders to file derivative suits and implement plurality voting in lieu of majority voting may trigger a negative recommendation.
Governing Document Amendments
GL updated its benchmark policy to reflect that it will take a case-by-case approach when evaluating governing document amendments. GL reiterated that it would recommend voting for amendments that do not have a material negative impact on shareholders’ interest. However, GL emphasized that it strongly opposes bundling of multiple amendments under a single proposal and believes this practice prevents shareholder from reviewing amendments on their own merit.
Supermajority Vote Requirement
GL updated its benchmark policy to clarify that when a company seeks to eliminate supermajority vote requirements it will evaluate the proposal on a case-by-case basis. GL also reiterated its belief that when a company has a large or controlling shareholder, a supermajority vote requirement may be appropriate in order to protect minority interests.
Shareholder Proposals
GL provided an update on its general approach to shareholder proposals to reflect recent changes in the SEC’s no action letter process, guidance and regulatory developments. GL clarified its position that shareholders should be afforded the opportunity to vote on matters of material importance. However, GL noted that because of the potential for changes to the shareholder proposal process, it may revise its approach prior to or during the 2026 proxy season.
What to Do Now
Companies should consider these rule changes, guidance, and voting policies updates when preparing for the 2026 Proxy and Annual Reporting Season.
If you have any questions, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets or Employee Benefits and Executive Compensation groups for the latest insights and industry response to these developments.