Investors Call Out: Board Performance Is Non-Negotiable

Rise of Investor Activism
Once seen as occasional agitators, activist shareholders have become influential global players who shape not only governance structures but also corporate strategy. Their influence is amplified by large institutional investors and proxy advisory firms, which increasingly support activist proposals. The result: heightened pressure on boards to address both financial performance and ESG priorities such as climate risk and board diversity.

This is no longer a U.S.-centric phenomenon. While North America and Europe remain the most active markets, Asia is witnessing a sharp rise in activist campaigns—underscoring the global nature of this shift.

Today’s activists use a sophisticated mix of proxy fights, media campaigns, behind-the-scenes negotiations, and settlement agreements. Their targets often include board composition, operational restructuring, and governance reform. While activism is still often seen as confrontational, many investors are open to constructive engagement—provided boards show strategic clarity and a willingness to adapt. This more pragmatic approach, often described as “collaborative activism,” enables boards to transform pressure into opportunity by refreshing leadership, increasing transparency, and proactively addressing legitimate concerns.

Regulatory developments and sustained media interest are making it easier for activists to mobilize broader support. High-profile cases have raised public awareness and prompted many companies to conduct “peacetime” governance reviews—assessing vulnerabilities before conflicts arise. Boards that recognize this shift and engage early can turn potential risks into long-term advantages. For deeper insights, see our dedicated briefing on How Boards Should Engage With Activist Shareholders.

Evolving Shareholder Expectations.
Looking ahead to the 2025 proxy season, the scope of investor scrutiny is expanding well beyond traditional financial metrics. Executive pay, shareholder rights, board composition and refreshment strategies, and robust board evaluations are moving to the center of the agenda. These themes reflect not only shifting regulatory landscapes but also evolving societal expectations around corporate accountability.

A key trend is that more investors are seeking direct access to board members outside of proxy season. This proactive engagement—well in advance of formal votes—aims to build trust and align on long-term value creation, risk oversight, and governance priorities. Boards that remain invisible or unresponsive risk alienating critical stakeholders and creating space for activist narratives to take hold. Importantly, institutional investors are increasingly willing to align with activist campaigns when their interests converge—particularly around ESG shortcomings and governance failures.

Investor activism has also gone global. Companies across Europe and Asia now face the same pressures that once seemed unique to the U.S.—from calls for spin-offs to demands for science-based climate targets. Meanwhile, new governance concerns are emerging: dual-class shares, loyalty voting structures, and virtual-only AGMs are seen by many shareholders as barriers to transparency and accountability.
For boards, the message is clear: shareholder expectations are rising—not only in scope, but in strategic depth. Financial performance alone is no longer enough. Sustained board effectiveness now requires a clear governance stance, credible ESG oversight, and a willingness to engage meaningfully with evolving investor demands.

The Influence of Proxy Advisors: Decisive but Context-Dependent
Proxy advisory firms—most notably Institutional Shareholder Services (ISS) and Glass Lewis—continue to shape outcomes during proxy season. Their influence is particularly evident in contested board elections, executive compensation votes, and ESG-related proposals. However, the weight of their recommendations varies significantly depending on company size, ownership structure, and the extent to which institutional investors follow independent voting policies.

At large-cap companies, final outcomes often depend on how the “Big Three”—BlackRock, Vanguard, and State Street—vote. A recent example at Disney illustrates this: ISS recommended a dissident nominee, yet the Big Three sided with management, ultimately tipping the balance. In contrast, at small- and mid-cap firms with more fragmented ownership, proxy advisor recommendations tend to have a more direct impact. These companies often lack dominant passive shareholders, making ISS and Glass Lewis especially influential.

While the influence of proxy advisors is real, it is rarely decisive on its own. A study by Rivel Research Group in 2016 found that only 7% of institutional investors consider proxy firms their primary voting influence, instead favoring internal guidelines and market best practices. Research by McCahery, Sautner, and Starks in 2015 reinforces this view: proxy advisors serve as a reference point—not a substitute—for institutional analysis.²

In recent months, there have also been visible changes in the proxy voting policies of the two market leaders. In the US, ISS has “indefinitely suspended” consideration of ethnic and racial diversity in its recommendations – a direct response to increasing political pressure. Glass Lewis has announced that it will review its criteria, but has not yet published new guidelines.

This reluctance is indicative of the growing caution with which institutional investors are evaluating ESG and DEI proposals. What was once considered a low-risk reputational measure is now being viewed in a more politically and economically nuanced way. As a result, both investors and proxy advisors are taking a much more critical look at ESG initiatives, focusing on their financial relevance and regulatory viability.

The introduction of the Universal Proxy Card (UPC) marks another structural shift.⁴ It allows management and dissident nominees to appear on the same ballot. For ISS and Glass Lewis, this means more detail and more case-by-case decisions. For smaller companies in particular, a single negative recommendation can now tip the scales – especially since the big institutional votes are often absent. Although both advisors now provide differentiated ratings based on company size and governance level, the large asset managers, in close consultation, retain the final say.

Implication for Boards: Boards must understand the interplay between proxy advisors and institutional investors—and build alignment early. For firms with fragmented ownership, even subtle shifts in proxy guidance can have outsized impact. Proactive engagement and transparent governance narratives are more important than ever.

Regulatory Pressure and the Expanding Disclosure Mandate
Global regulatory developments are adding complexity to disclosure requirements—especially around ESG and DEI issues. Boards must navigate not only differing legal expectations across jurisdictions, but also increased scrutiny from shareholders and regulators alike.

In the United States, Staff Legal Bulletin No. 14M⁵ has raised the bar for ESG and social proposals by requiring a clear connection to a company’s core business operations. Meanwhile, the SEC is tightening oversight on beneficial ownership, mandating detailed Schedule 13D⁶ filings for investors holding over 5% . This has made some shareholders more cautious about launching public campaigns on ESG issues.

Across the Atlantic, the EU’s Shareholder Rights Directives have substantially expanded transparency requirements.⁷ Listed companies must now disclose board-level oversight mechanisms, director compensation ratios, and the integration of ESG factors into corporate strategy. European regulators tend to take a more prescriptive stance on governance—pushing boards to embed ESG and diversity into their reporting frameworks.

Major financial markets in Asia are also catching up: Hong Kong, for example, requires listed companies to publish detailed ESG reports in line with international standards such as the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).⁸ Singapore, South Korea, and other countries in the region are increasingly tightening their governance requirements, albeit at different speeds and with approaches that in some cases vary widely. This makes it much more difficult for multinationals to establish a single reporting standard that is globally compatible.

Overall, a fragmented picture is emerging: while fewer ESG proposals are appearing on the agenda in the US, regulatory pressure for holistic reporting – from sustainability goals to executive compensation – is growing in Europe and Asia. At the same time, regulatory setbacks to DEI requirements in some countries are causing companies to rethink diversity metrics or adjust incentive systems. But despite these different frameworks, one expectation remains the same: investors around the world want transparency on all issues that materially affect long-term value creation – and a board that can independently and competently deliver on that expectation.

Implication for Boards: Compliance is no longer sufficient. Boards must anticipate where disclosure standards are heading and proactively manage the narrative. Materiality thresholds are shifting—and so is the definition of what constitutes effective board oversight in an era of politicized ESG expectations.