2025 has been a fast-paced year on the regulatory front. At the Securities and Exchange Commission, President Donald Trump is very much picking up where he left off at the end of his first term, and many of the updates carry significant implications for institutional investors.
As CIO previously reported, the year started off with mid-season changes to proxy voting guidance. Those changes gave companies more flexibility to exclude shareholder proposals. Earlier this month, the SEC moved to rescind a policy interpretation that blocked the use of mandatory arbitration in initial public offerings. It followed a week later with a decision to move forward with Trump’s desire to change quarterly earnings reporting to a biannual schedule. Then, on September 26, through a no action letter, the commission stated it would allow Exxon Mobile to move forward with its so-called “Retail Voting Program,” which could limit some shareholder participation in proxy votes and raise overhead costs to banks, brokers and investment platforms. Taken together, these measures give considerably more power to companies and could lead to less transparency for investors.
“I don’t think this opens the floodgates in the sense that every company is going to move toward using mandatory arbitration provisions,” explains Jennifer Zepralka, a partner in the public companies and corporate governance practice group at law firm Mayer Brown. “But what the SEC is doing is saying, ‘We’re taking our thumb off the scale.’ Which means we’re going to see some reordering around state laws and also more of a discussion between companies and their investors. Some investors may choose to vote with their feet if they don’t like what they see.”
The decision to rescind policy interpretations and prior guidance is different from an official rulemaking, but legal experts say that the impact of these moves is similar to a formal change of the SEC’s rules, since policy interpretations and commission guidance inform how the regulator will approach a given issue. Something like changing corporate quarterly reporting, however, will require a rulemaking process. SEC Chair Paul Atkins has not given an official timeline but did say the commission was planning to “fast-track” the president’s push to nix quarterly earnings reports.
It is not clear how these changes fit with the SEC’s “mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation,” as described on its web site.
Investors and asset managers may also have to wait to get more detail from the commission. Now that the government is shut down, the SEC’s Investment Management Division has issued a statement noting that it is unavailable to answer questions on pending matters while the government is closed. The Division of Trading and Markets is also unable to respond to new investment product listings or applications that had not been approved prior to the shutdown.
Increased Risk
While some companies may welcome the change in posture at the SEC, some asset owners argue that these changes lead to increased and potentially untenable risks for investors. Public pension funds, public treasurers and comptrollers, for example, have all served as lead plaintiffs in shareholder lawsuits in the past. If mandatory arbitration becomes more common, that could limit how fiduciaries seek redress from companies.
“Ultimately, there will still be a variety of obligations on companies to get information to investors,” Zepralka says. “For example, companies still have to disclose material information in connection with securities offerings.”
When news of the SEC plan to rescind the ban on mandatory arbitration for IPOs came out, Oregon Treasurer Elizabeth Steiner wrote a public letter asking Atkins to reconsider, arguing that the change increases the risk to both institutional and retail investors.
“Changing policy as the Commission proposes would require individual shareholders to rely on the government to enforce their private rights,” Steiner wrote in the letter. “History has shown that the government is not structured to fully address all harm to individual shareholders who have been injured by corporate fraud.”
Steiner serves on the Oregon Investment Council, which oversees the $98.4 billion Oregon Public Employees Retirement Fund, the $2.7 billion Common School Fund. In an interview with CIO, the treasurer went further.
“What I would say is: Process matters in government. and the process here is atrocious,” Steiner says. “Even if this isn’t technically a rulemaking, what we are talking about is such a significant reinterpretation of the SEC’s stance that it should have been subject to public comment.”
Steiner adds that by shifting power to companies, the SEC has reinforced stratification among investors.
“As an institutional investor, I have more power to engage with companies,” she says. “But as a treasurer, I am also focused on what this means for retail investors in Oregon—the parents who have 529 [accounts], 401(k) participants, individual investors—they have less power when it comes to engaging with companies directly and affecting change. That raises questions of fairness and transparency. It is arguably also a free speech violation if investors aren’t being afforded an adequate process.”
Transparency Issues
The shift at the SEC also raises transparency concerns. Companies now have more flexibility to exclude shareholder measures from their annual meetings, and a common theme among shareholder proposals is calling on companies to provide more data or enhanced disclosure. A shift toward biannual earnings reports would also limit how frequently investors receive new guidance from companies, which can have a direct impact on portfolio performance. What’s more, even if investors brought a measure calling on companies to maintain quarterly reporting, companies could potentially get that measure excluded under existing ordinary business exclusion rules.
It is also likely to affect how investment managers run their own strategies. In response to the idea of changing quarterly reporting, LCD Pitchbook—a leveraged loan data and analytics provider—surveyed buy-side, sell-side and investment advisers about how it would impact their strategies. Among respondents, 68% said the move would have a broadly negative impact on loan markets. LCD analysts noted that many participants in the leveraged lending market are sponsor backed, which means their disclosure requirements are already significantly weaker than their listed peers; however, the change would increase the overall opacity of corporate lending.
The negative response to the survey question could be a key data point. Zepralka notes that if reporting requirements change, the SEC would have to do so through a formal rulemaking process, including public comment periods—often more than one—as the SEC gathers feedback and refines its proposal. If asset managers and investors alike take issue with the change during that dialogue, it could result in a change that is more acceptable to both groups.
“There is an opportunity for investors to stand up and make their preferences known in a comment period, and in the past, that has been influential,” Zepralka says. “If the SEC were to adopt rule changes eliminating a quarterly reporting requirement, we may see more investor groups come together to engage with companies and try to compel or encourage more frequent disclosure, including potentially through the shareholder proposal process, but it’s hard to gauge how successful that would be.”
Oregon’s Steiner says she is already working with other investor groups on governance issues and recently completed a successful budget negotiation in the state legislature to increase headcount on the investments team specifically to engage with managers and companies on governance and transparency issues.
“We’re adding four or five new roles to manage these issues, as well as other ESG-related concerns. These members of the investment division will also be engaging with our external investment managers,” she says. “These changes [to securities regulation] have the potential to negatively impact investment managers as well. As a fiduciary, I view it as a core part of my role to make sure we have the resources to navigate these shifts and to use my bully pulpit to advocate for our office as an investor as well as the individual investors of Oregon. Companies aren’t the only market participants impacted here, and investor interests should be included in the discussion.”
Tags: arbitration, investor activism, Oregon, proxy voting, Securities and Exchange Commission, Transparency