Corporate Governance Reforms Supported by Investors

In today's global economy, corporate governance has become a critical battleground for investor influence and reform.

Shareholders are increasingly stepping up to push for changes that ensure businesses operate with greater transparency and responsibility.

The staggering $300 billion annual compliance cost underscores the urgent need for systemic improvements across industries.

The High Cost of Governance Compliance

Regulatory burdens are placing immense financial pressure on companies of all sizes.

American businesses alone spend approximately $300 billion yearly on compliance, with costs unevenly distributed.

Smaller firms often bear a disproportionate burden, hindering growth and innovation.

• Only 4% of governance leaders globally have fully integrated GRC and financial systems.
• 97% of leaders report facing major challenges in being transaction-ready.
• Majority of companies spend over $100,000 annually on shareholder proposal management.
• About 25% allocate at least $500,000, with 11% spending $1 million or more.

These statistics reveal a system in dire need of optimization and support.

Current Regulatory Reforms in Motion

The SEC is spearheading initiatives to modernize disclosure frameworks and reduce complexity.

Chairman Paul S. Atkins announced a comprehensive review of Regulation S-K in January 2026.

This aims to sharpen focus on material information and streamline executive compensation disclosures.

• SEC convened a public roundtable in June 2025 to assess compensation disclosure clarity.
• Panelists noted that current narratives often obscure key factors for investors.
• Upcoming rule proposals in April 2026 include shareholder proposal modernization.
• Other proposals focus on enhancing accommodations for emerging growth companies.
• Rationalization of disclosure practices to facilitate material information access is also planned.

These reforms aim to create a more efficient and investor-friendly governance landscape.

Major Trends Shaping Corporate Governance

Investor expectations are evolving rapidly, driving new accountability measures.

Boards are under increased scrutiny to refresh composition and oversee executive performance.

This includes greater transparency in how CEOs are held accountable for results.

• Expectations for investors to influence corporate strategy are rising.
• Engagement with activist investors is becoming more common.
• Focus on board composition and refreshment continues to grow.
• Proxy advisory firms like ISS and Glass Lewis are updating policies for 2026.
• Regional developments, such as Japan's reforms, are reshaping equity markets.

These trends highlight a shift towards more dynamic and responsive governance structures.

Investor-Driven Reforms and Advocacy

Investors are vocal about politicization in the shareholder proposal process.

Many companies express concern that narrow interests are hijacking long-term value creation.

Support for reforms is strong, with 61% of companies favoring percentage-based ownership thresholds.

• 86% of company representatives support increasing minimum levels for resubmitted proposals.
• A coalition of 23 international investors filed resolutions at Shell and BP's 2026 AGMs.
• Advocacy areas include energy transition and long-term financial viability for fossil fuel companies.
• Investors aim to protect shareholders from potential losses in delayed transitions.

This demonstrates a growing consensus on meaningful governance improvements.

Navigating Implementation Challenges

Regulatory complexity poses significant hurdles for organizations worldwide.

Mid-market companies face disproportionate cost burdens, while enterprise firms manage cross-jurisdictional compliance.

State-level pressures, like California's climate laws, add to the challenge.

• Board training mandates can lead to mediocre content if implemented poorly.
• Effectiveness reviews risk becoming box-checking exercises without genuine engagement.
• Excessive focus on compliance can divert attention from primary strategic responsibilities.
• The financial crisis in highly regulated markets questions the efficacy of increased legislation.

Overcoming these issues requires a balanced approach to governance and strategy.

Cross-Border Governance Complexities

In the European Union, outdated financial intermediary chains complicate shareholder rights.

Omnibus accounts and multiple intermediaries increase costs and disperse liability unnecessarily.

Regulations like SRD II aim to improve information transmission and transparency.

Solutions include embracing digital boardrooms and advanced proxy voting systems.

This highlights the need for global coordination in governance reforms.

Lessons from Recent History

Historical trends from 2018 to 2020 show a steady evolution in governance priorities.

Investors have consistently pushed for greater board quality and performance over time.

ESG considerations have moved to center stage, influencing both boards and investors.

• 2018: Focus on investor influence, activist engagement, and board composition.
• 2019: Emphasis on governance as a value-add tool and ESG prominence.
• 2020: Expansion of remote work, diversity on boards, and executive compensation scrutiny.

These lessons underscore the ongoing transformation driven by investor advocacy.

Looking ahead, the path forward requires collaboration and innovation.

Investors must continue to advocate for reforms that balance compliance with growth.

Companies should proactively engage with shareholders to build trust and alignment.

By embracing these changes, businesses can foster a more resilient and value-driven future.

The journey towards effective governance is challenging but essential for sustainable success.

Let this be a call to action for all stakeholders to participate in shaping a better system.