McGuireWoods Quarterly Securities & Capital Markets Update

Welcome to the inaugural McGuireWoods’ Quarterly Securities & Capital Markets Update. Each edition will review important securities law developments from the previous quarter and alert readers of significant considerations for the upcoming reporting period.

This kickoff edition provides updates on significant developments from 2025 and reminders for calendar year-end registrants regarding their upcoming Annual Report on Form 10-K. This alert covers the following topics:

• Form 10-K Risk Factor Updates
• SEC Filer, Reporting and WKSI Status Determinations
• Form 10-K Cover Financial Restatement and Compensation Clawback Disclosure
• “Shadow Trading” and Insider Trading Risk
• Insider Trading Policy Filing Requirements
• Shareholder Proposals
• Exxon Mobil Retail Shareholder Voting Program
• ISS and Glass Lewis 2026 Proxy Voting Policy Updates
• California Mandatory Climate Disclosure Developments (S.B. 219)

Form 10-K Risk Factor Updates

As calendar year-end registrants begin to prepare their Forms 10-K, this is the time to take a fresh look at risk factors to determine whether updates are warranted, whether new risk factors should be added and whether any existing risk factors should be deleted.

The risk factor section should highlight the material factors that make an investment in a registrant speculative or risky and should be tailored to a registrant’s specific facts and circumstances, avoiding boilerplate language and an overly generic “kitchen sink” approach to disclosing risks. Additionally, registrants should review their risk factors to avoid hypothetical language if the event described has actually occurred.

Changes to the risk factor section should align with updates in other parts of a registrant’s Form 10-K, including the business section, the MD&A section, cybersecurity disclosures and the notes to the financial statements. Risk factors should be organized by subject matter headings and, if generic risk factors are included, grouped under the heading “General Risk Factors.”

Finally, if the risk factor section exceeds 15 pages, the SEC requires registrants to include a bulleted or numbered risk factor summary section.

Potential Topics to Consider in Connection With Risk Factor Updates

• Artificial Intelligence: Many public companies now widely use artificial intelligence (AI) in their business operations, including data analytics, customer engagement, automation and product development. Accordingly, those companies should consider including one or more risk factors addressing increased cybersecurity risks, data privacy concerns and the potential mishandling of personal, confidential or proprietary information associated with AI usage. Companies may also wish to highlight risks related to the accuracy, reliability and explainability of AI-generated outputs, including the potential for errors, bias or unintended consequences that could lead to regulatory scrutiny, litigation or reputational harm. In addition, public companies should consider addressing the competitive risk of failing to adopt or deploy AI effectively relative to competitors, as well as the potential impact of evolving domestic and international AI regulations on business models, compliance costs and innovation.
• Inflation and Interest Rates: Inflationary pressures and elevated interest rates continue to affect operating costs, labor expenses, supply chains and consumer demand across many industries. Public companies should consider risk factor disclosure addressing the potential impact of sustained inflation, higher borrowing costs, reduced access to capital and increased volatility in credit and equity markets. Companies with significant debt obligations or capital-intensive operations should also highlight any related refinancing and liquidity risks.
• Digital Assets and Digital Asset Treasuries: Public companies engaging in or exposed to digital assets should consider risk factor disclosure addressing the legal, regulatory and market uncertainties surrounding these instruments, including evolving SEC oversight and broader digital asset regulatory frameworks. Companies that have adopted or are considering digital asset treasury (DAT) strategies — whereby corporate balance sheets hold significant cryptocurrencies such as Bitcoin, Ethereum or other tokens and raise capital through equity or debt to support such holdings — may face concentrated market, valuation, liquidity and governance risks unique to these models. DAT strategies can expose issuers to heightened price volatility, leverage risk, equity trading premiums or discounts relative to net asset value and increased scrutiny from regulators and index providers, all of which could materially affect financial condition and investor expectations. Robust disclosure should also address operational, custodial and accounting challenges tied to digital asset holdings, as well as related-party, governance and potential future regulatory developments.
• Cybersecurity and Data Privacy: Cybersecurity threats and data privacy obligations continue to grow in frequency, sophistication and regulatory scrutiny. Public companies should consider risk factors addressing the potential for material disruptions, data breaches, ransomware attacks and misuse of sensitive or personal information, as well as increased compliance costs under expanding federal, state and international privacy regimes. Disclosure may also address reputational harm, litigation exposure and operational downtime resulting from cyber incidents.
• Federal Government Shutdowns, Recent and Future: Actual or threatened U.S. federal government shutdowns may adversely affect public companies through regulatory delays, reduced government spending, contract interruptions and broader economic uncertainty. The prolonged 2025 shutdown created backlogs and operational disruptions at key federal agencies. The SEC operated with limited staff, delaying informal guidance and no-action responses and slowing the processing of non-emergency requests even after core functions resumed, which may impede capital markets transactions and compliance planning. Registrants that rely on government customers, regulatory approvals or timely economic data for forecasting should consider risk factor disclosure addressing these lingering effects and the potential for future extended shutdowns to similarly delay rulemaking, guidance, registrations or other regulatory actions. These disruptions could contribute to increased volatility, planning uncertainty and operational risk, particularly for issuers with pending filings or time-sensitive transactions.
• U.S. Tariffs and Trade Policy Uncertainty: Increased U.S. tariffs and ongoing uncertainty surrounding trade policy may materially affect registrants with global operations or international supply chains. Registrants should consider risk factor disclosure addressing higher input costs, retaliatory tariffs, supply chain realignment challenges and reduced demand in affected markets. Trade policy volatility may also complicate long-term planning and pricing strategies.
• Nasdaq’s Minimum Bid Price and Accelerated Delisting Rules: Nasdaq’s recent rule amendments accelerating delisting timelines for registrants that fail to meet minimum bid price requirements increase the risk of earlier trading suspensions or delistings. Registrants listed on Nasdaq should consider risk factor disclosure addressing reduced flexibility to regain compliance, potential impacts on liquidity and market perception and the consequences of a delisting, including reduced access to capital and increased volatility. Registrants with stock prices near applicable thresholds may face heightened compliance risk.
• Company-Specific Events: Registrants should also consider whether extraordinary events during the past year — such as mergers, acquisitions, significant divestitures, restructurings or other material changes to the business — warrant updates to risk factor disclosure.

Filer, Reporting and WKSI Status

Initial Filer Status

Now is the time for calendar year-end registrants to reconfirm their SEC filer status for the 2026 fiscal year. Filer status, i.e., Non-Accelerated, Accelerated or Large Accelerated Filer and reporting status, i.e., Smaller Reporting Company (SRC) and Emerging Growth Company (EGC), is determined based on a registrant’s non-affiliate public float as of the last business day of the prior second fiscal quarter and determines a registrant’s annual and quarterly report deadlines and the scope of required disclosures.

Filer Status	Requirements
Large Accelerated Filer	• Subject to the SEC reporting requirements for a period of at least 12 calendar months and filed at least one annual report • Public float of $700 million or moreNot an SRC under the SRC “revenue test” referenced below
Accelerated Filer	• Subject to the SEC reporting requirements for a period of at least 12 calendar months and filed at least one annual report • Public float of $75 million or more, but less than $700 million • Not an SRC under the SRC “revenue test” referenced below
Non-Accelerated Filer	• Public float of less than $75 million, qualifies as an SRC under the SRC “revenue test” referenced below, or does not otherwise meet the requirements of a “large accelerated filer” or an “accelerated filer.”

Current Filer Status

Once a registrant determines its filer status, it remains within that filer status until a future determination date when it meets the thresholds in the table below. In addition, if a filer qualifies as an SRC under the SRC “revenue test” referenced below, it qualifies as a non-accelerated filer even if it otherwise would have qualified as a large accelerated filer or an accelerated filer.

Current Filer Status	Subsequent Public Float	Resulting Filer Status
Large Accelerated Filer	$560 million or more	Large Accelerated Filer
	Less than $560 million, but $60 million or more	Accelerated Filer
	Less than $60 million	Non-Accelerated Filer
Accelerated Filer	$700 million or more	Large Accelerated Filer
	Less than $700 million, but $60 million or more	Accelerated Filer
	Less than $60 million	Non-Accelerated Filer
Non-Accelerated Filer	$700 million or more	Large Accelerated Filer
Non-Accelerated Filer	Less than $700 million, but $75 million or more	Accelerated Filer
Non-Accelerated Filer	Less than $75 million	Non-Accelerated Filer

Reporting Status

Additionally, a registrant initially qualifies as an SRC if, as of the last business day of the prior second fiscal quarter, it has:

• a public float of less than $250 million (SRC public float test); or
• annual revenues of less than $100 million for its most recently completed fiscal year for which audited financial statements are available, and either (a) no public float or (b) a public float of less than $700 million (SRC revenue test).

Once a registrant determines that it is not an SRC, it remains unqualified under the SRC public float test until its public float is less than $200 million. Likewise, once a registrant determines that it is not an SRC, it remains unqualified under the SRC revenue test until it determines that it meets both the SRC public float test and the following annual revenue requirements:

Prior Annual Revenue	Prior Public Float
	None or less than $700 million	$700 million or more
Less than $100 million	Neither threshold exceeded	Public float – Less than $560 million; and   Revenues – Less than $100 million
$100 million or more	Public float – None or less than $700 million; and   Revenue – Less than $80 million	Public float – Less than $560 million; and   Revenue – Less than $80 million

In August 2025, the SEC added a Compliance and Disclosure Interpretation (C&DI) 130.05, that provides guidance on determining Accelerated or Large Accelerated Filer status after a registrant loses SRC status. Registrants that have recently crossed SRC thresholds should carefully consider this guidance when generating their 2026 reporting timelines. In addition, registrants that went public in 2020 or 2021 should evaluate whether they are nearing the end of their EGC period due to the passage of time if their EGC status has not already been lost for other reasons.

WKSI Status

Registrants should also review their eligibility as well-known seasoned issuers (WKSIs) as they prepare for the annual reporting cycle. WKSI status is re-evaluated at the time of the Form 10‑K filing and has immediate implications for a registrant’s ability to offer and sell securities off a previously filed shelf registration statement.

• If a registrant currently qualifies as a WKSI and has an effective automatic shelf registration statement on Form S‑3ASR (Form S-3ASR), special care is warranted.

• If the registrant will not meet WKSI requirements within 60 days prior to its Form 10‑K filing date, it cannot continue to offer and sell securities from its Form S‑3ASR after the Form 10-K filing date unless it takes certain steps before filing its Form 10‑K (such as amending its Form S‑3ASR to include all information required by a non-automatic shelf registration statement on Form S‑3 (Form S-3) and then filing a post-effective amendment following the Form 10-K filing, or preparing a new Form S‑3 following the Form 10‑K filing).

Registrants should take the time now to confirm their WKSI status to avoid disruptions in their ability to access the capital markets and use their shelf registration statements.

Form 10-K Cover Financial Restatement and Compensation Clawback Disclosure

The cover of the Form 10-K requires registrants to disclose (via check box) whether:

• the financial statements included in the Form 10-K reflect a correction of an error to previously issued financial statements; and
• if any of the error corrections are restatements requiring a recovery analysis of incentive-based compensation received by any executive officers under the clawback policy.

While this requirement has been in effect since 2023, there has been considerable confusion concerning when registrants are required to make these “check the box” disclosures.

Accordingly, in April 2025, the SEC released C&DIs providing the following helpful guidance:

• Immaterial Prior Period Error Corrections: The correction of an immaterial prior period error that is recorded in the current year (commonly referred to as an “out-of-period adjustment”) does not require the listed issuer to mark the check box because the previously issued financial statements are not revised. (C&DI 104.20)
• Clawback Analysis Required Regardless of Payout: Whether or not incentive-based compensation was received by executive officers during the relevant time frame, if a recovery analysis was prompted, the box should be checked. (C&DI 104.21)
• Future Filings After a Restatement: After the applicable clawback boxes are checked, the SEC staff will not object to the boxes remaining unmarked on future filings assuming no additional restatements. Certain Regulation S-K Item 402(w) disclosures, however, may still be required in instances in which the restatement occurred “during or after the registrant’s last completed fiscal year.” (C&DI 104.22–104.23)
• Restatements Disclosed Outside the Form 10-K: The clawback boxes must still be checked on Form 10-K even if a registrant reports a restatement of an annual period in its financial statements on a form that does not include a check box requirement on the cover page (for example, a Form 8-K or a registration statement). (C&DI 104.24)
• Interim-Only Period Restatements: If a restatement only impacts interim periods, the clawback boxes do not need to be checked. However, Regulation S-K Item 402(w) executive compensation disclosure is still triggered even for restatements that impact interim periods only. (C&DI 104.25)

Shadow Trading and Insider Trading Risk: What Panuwat Means for Public Companies in 2026

What is “Shadow Trading”?

“Shadow trading” is the theory that a person can commit insider trading by using material nonpublic information (MNPI) about one company to trade in the securities of a different but economically linked company, such as a competitor, supplier or partner. It may be viewed as a potential loophole when insiders exploit information from one company to make money with respect to another. It is distinct from traditional insider trading, which involves an insider utilizing MNPI to trade in the securities of the company that is the subject of the MNPI. Instead, shadow trading profits result from external, related companies to the company that is the subject of the MNPI.

SEC v. Panuwat

The concept of “shadow trading” was tested in SEC v. Panuwat, in which the SEC alleged that an executive used confidential information about an imminent acquisition of his employer to trade options in a peer company he expected would benefit from the news. See SEC v. Panuwat, No. 21-cv-06322, 2023 WL 6627847 (N.D. Cal. Oct. 10, 2023). In Panuwat, the SEC focused on the close market relationship between the companies and on the executive’s obligations under his employer’s insider trading policy, which expressly prohibited using confidential information to trade in the securities of any other publicly traded company. In October 2023, the U.S. District Court for the Northern District of California denied the defendant’s motion to dismiss, allowing the SEC’s shadow trading theory to proceed. In April 2024, following a jury trial, the defendant was found liable for insider trading, marking the first litigated verdict endorsing the SEC’s shadow trading theory. The case is now on appeal with the U.S. Court of Appeals for the Ninth Circuit.

Implications of Panuwat

Since Panuwat, public companies have increasingly revisited their insider trading policies, which must now be filed publicly, to clarify whether and to what extent employees are restricted from trading in securities of peer companies, business partners or other related companies. The insider trading policies of many companies include prohibitions on trading in securities of other companies based upon MNPI regarding such other companies that was acquired during the course of employment. But fewer companies expanded such language to explicitly capture the risk of shadow trading, in which individuals trade in the securities of another company on the basis of MNPI relating to the company that employs them. Adopting expansive prohibitions against shadow trading carries practical considerations, including whether the company may create obligations it cannot realistically monitor or enforce consistently, in addition to the risk that the company may inadvertently create a duty to not trade, particularly given the Panuwat court’s emphasis on the broad language in the company’s insider trading policy regarding trading in the securities of other public companies.

Shadow Trading Implications on “Wall Cross” Processes

Concerns about shadow trading also affect “wall cross” processes, in which an issuer shares MNPI with select institutional investors ahead of a potential transaction as long as they agree to a number of restrictions (including to keep the MNPI confidential and to not trade in the securities of the issuer), in order to gauge interest and secure commitments before a public offering announcement. As market participants digested Panuwat and its outcome, some registrants considered restricting wall-crossed investors from trading not only in their own securities, but also in those of competitors or other economically linked companies to varying degrees of success. Many investors resist such restrictions as overly burdensome, raising the risk that a company could face regulatory scrutiny if an investor “shadow trades” based on MNPI received as part of the wall cross. As a result, market participants are reassessing how to balance adequate protection against shadow trading liability with the practical need to secure investor participation in transaction-related wall crosses.

Future SEC Developments on “Shadow Trading”

Public companies should continue to monitor the SEC’s enforcement priorities in light of changes in leadership and policy direction. While Panuwat remains good law pending appeal, the SEC under the current presidential administration may be less inclined to devote enforcement resources to pursuing shadow trading cases, particularly absent egregious facts or clear policy violations. As a result, companies may reassess on an ongoing basis whether shadow trading risk warrants further expansion of insider trading policies or more aggressive restrictions in wall-cross settings, or whether existing controls appropriately balance legal risk, practicality and market norms.

Insider Trading Policy Filing Requirement

Pursuant to Regulation S-K Item 408, this is the second reporting season that registrants are required to:

• disclose if they have an insider trading policy or explain why they do not have such a policy, and
• file a copy of their insider trading policy as an exhibit to their Form 10-K.

Registrants should take time now to review their insider trading policy for appropriate updates based on internal company practices during the last fiscal year to potentially address shadow trading or other developments.

To the extent a registrant has updated its insider trading policy since its prior Form 10-K filing, it will need to file its updated policy as Exhibit 19 to its upcoming Form 10-K. Otherwise, if no changes have been made, the registrant can incorporate by reference its previously filed policy as Exhibit 19.

Shareholder Proposals

SEC No Longer Responding to No-Action Letters

On Nov. 17, 2025, the SEC Division of Corporation Finance (the “Division”) announced that, for the 2025-2026 proxy season, it will not issue Rule 14a-8 no‑action letters except in instances of exclusions under Rule 14a‑8(i)(1) on the basis that the proposal is improper under state law. The Division cited “current resource and timing considerations following the lengthy government shutdown and the large volume of registration statements and other filings requiring prompt staff attention, as well as the extensive body of guidance from the SEC and the staff available to both companies and proponents” as the reasons for its change in approach for the 2025-2026 proxy season. Companies must still provide Rule 14a‑8(j) notice at least 80 days before filing definitive proxy materials. That notice is informational only but must include the required explanation and cite the most recent applicable authority when possible.

If a registrant seeks a staff response for exclusions other than those under Rule 14a‑8(i)(1), its Rule 14a‑8(j) notice must include an unqualified representation that the company has a reasonable basis to exclude the proposal under Rule 14a‑8, published guidance and/or case law.

In such cases, the Division will issue a letter stating it will not object to omission based solely on the registrant’s representation, without assessing the adequacy of that representation or opining on the merits. Given other constituencies in the process, such as proponents, shareholders and proxy advisers, many companies have continued to include detailed analyses in their notices. Overall, registrants should be prepared to rely more heavily on their own, well‑supported exclusion determinations and maintain detailed internal records to support such determinations.

Validity of Precatory Shareholder Proposals under Delaware Law

While the SEC will no longer issue most Rule 14a-8 no-action letters, it will continue to issue letters for requests brought under Rule 14a-8(i)(1) on the basis that the proposal is improper under state law. This is due to a lack of applicable guidance for companies and proponents to rely on with respect to Rule 14a-8(i)(1) exclusions given a potentially shifting regulatory landscape.

In a speech on Oct. 9, 2025, SEC Chairman Paul Atkins argued that many precatory shareholder proposals are not a “proper subject” for shareholder action under Delaware law, which is important because Rule 14a‑8(i)(1) allows for exclusion of proposals that cannot properly be brought before a meeting under state law. He pointed to Delaware practitioners’ views — and then‑Chancellor Leo Strine’s 2007 remarks deriding precatory proposals as “imaginary voting” — to support the conclusion that Delaware law does not confer an inherent right for shareholders to vote on nonbinding resolutions. Although the note to Rule 14a‑8(i)(1) reflects a staff‑level presumption that precatory proposals are proper, Chairman Atkins stressed that this presumption is rebuttable and that the SEC’s 1983 amendments clarified that the question is “solely a matter of state law.”

Building on that, Chairman Atkins encouraged companies incorporated in Delaware to consider excluding precatory proposals under Rule 14a‑8(i)(1) when their charters or bylaws do not create a voting right and to support exclusion with an opinion of Delaware counsel that such proposals are not a proper subject for shareholder action. He expressed “high confidence” the SEC staff would respect that position and noted the SEC’s ability to certify state‑law questions to the Delaware Supreme Court for rapid, authoritative resolution.

For more details regarding the no-action letter process for the 2025-2026 proxy season see McGuireWoods’ previous alert.

Exxon Mobil Retail Shareholder Voting Program

On Sept. 15, 2025, the Division issued a no-action letter to Exxon Mobil Corporation allowing it to implement a retail voting program designed to increase participation by individual (retail) investors in corporate governance matters. Under this program, Exxon’s retail shareholders can opt in to give standing voting instructions that direct Exxon to vote their shares according to the board’s recommendations for future meetings. Participants can choose whether the instruction applies to all matters or to all matters except contested director elections and certain acquisition/merger votes. They can opt out at any time at no cost. Exxon also will send annual reminders about participation and opt-out rights, and shareholders can override their standing instruction for a particular meeting by voting directly through traditional proxy methods.

Exxon’s approach may serve as a model for other public companies with significant retail ownership, potentially helping management consolidate support in proxy contests and with respect to shareholder proposals by mobilizing an often underrepresented voting bloc. Exxon determined that its program complies with relevant state corporate law requirements (e.g., New Jersey and Delaware statutes) by expressly providing that standing voting instructions remain effective until revoked.

Ongoing Challenges

The initiative has faced criticism from some shareholder advocacy groups and has been challenged in litigation alleging violations of the federal proxy rules, with opponents arguing that the program may dilute active shareholder decision-making. In light of these unresolved legal challenges and evolving shareholder reactions, other public companies may wish to proceed cautiously and take a deliberate and thoughtful approach before adopting similar retail voting programs, notwithstanding the SEC’s no-action relief.

For details regarding the Exxon retail voting program, see previous alert. Exxon’s solicitation materials filed on Schedule 14A with the SEC also describe the retail voting program.

ISS and Glass Lewis 2026 Proxy Voting Policy Updates

Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) recently finalized updates to their proxy voting policies for the 2026 proxy season. These policies will apply to 2026 shareholder meetings (meetings on or after Feb. 1, 2026, with respect to ISS; meetings on or after Jan. 1, 2026, with respect to Glass Lewis).

Below is an overview of key developments for public companies preparing for the 2026 proxy season.

ISS:

• Problematic Capital Structures: ISS’s Proxy Voting Guidelines have been updated, and ISS will generally recommend against the sitting directors at companies with a multi-class capital structure that has unequal voting rights. ISS added two new exceptions to this policy for 2026: (i) when the only other class of stock other than common stock are convertible preferred shares that vote on an “as-converted basis” and (ii) situations in which the enhanced voting rights are limited in duration and applicability (e.g., if they are intended to overcome low voting turnout on a specific, noncontroversial agenda item) and “mirrored voting” applies. ISS’s updates further clarify that it will object to the practice of unequal voting rights, regardless of whether the company labels the shares as “common” or “preferred.”
• Dual Class Structure: ISS updated its dual class structure voting policy to clarify that it will generally recommend a vote against proposals to create a new class of preferred stock with voting rights that are superior to the common stock unless: (i) the preferred shares are convertible into common shares and vote on an “as-converted basis” prior to conversion and (ii) the enhanced voting rights are limited in duration and applicability and “mirrored voting” applies.
• Pay for Performance Evaluation: ISS’s pay-for-performance analysis now covers five years (as opposed to the previous three-year period) and will assess the CEO’s total pay relative to the peer group median over one- and three-year periods (previously compared only to the most recent fiscal year).
• Time-Based Equity Awards With Longtime Horizon: ISS’s update represents a more flexible approach in ISS’s evaluation on the pay mix in the pay-for-performance qualitative review. ISS’s qualitative pay review will now positively weigh time-based equity awards that are “sufficiently long-term,” through extended vesting and/or post-vesting retention. ISS notes that many investors accept time-based equity as a majority (or even all) of the equity mix if accompanied by sufficiently long-term horizons. It will also consider realized pay outcomes alongside granted and realizable pay.
• Compensation Committee Communications and Responsiveness: ISS’s policy has been updated to address cases in which a company disclosed meaningful efforts to engage with shareholders but was ultimately unsuccessful in receiving feedback. ISS notes that recent SEC guidance regarding Schedule 13G (passive) vs. Schedule 13D (active) filing status for institutional investors may make it harder for issuers to receive feedback after a low say-on-pay vote result. As a result of the update, ISS will not view the absence of specific shareholder feedback negatively if the company discloses meaningful engagement efforts, discloses that it was unable to receive specific feedback despite engagement efforts and describes meaningful company actions taken in response to the low say-on-pay support, including the rationale for such actions and their benefits to shareholders.
• High Non-Employee Director Pay: ISS’s updated policy clarifies that it will generally recommend a vote against members of the board committee responsible for approving non-employee director compensation if there is a pattern of two or more consecutive or nonconsecutive years of awarding excessive non-employee director compensation without disclosing a compelling rationale or other mitigating circumstances. It also clarifies that an adverse recommendation may be warranted for “egregious” non-employee director pay in the first year.
• Equity-Based and Other Incentive Plans:
  • Scored Factor for Disclosure of Cash-Denominated Award Limits:
    • ISS added a new scored factor for disclosure of cash-denominated award limits for non-employee directors. Previously, individual award limits for non-employee directors have been noted in ISS’s Equity Plan Scorecard (EPSC) analysis as informational data and not as a scored factor.
    • The EPSC considers a range of positive and negative factors to evaluate equity incentive plan proposals. Each factor considered is grouped under three pillars: plan cost, plan features and grant practices. Each factor also has a maximum potential score. The maximum aggregate score an equity incentive plan proposal can receive is 100 points. A company’s total EPSC score is used by ISS to provide either a “for” or “against” recommendation for the plan proposal.
    • ISS determined that it will award positive points in its EPSC analysis if a company’s equity compensation plan clearly discloses specific limits on the value of cash awards that can be granted to non-employee directors. By requiring cash-denominated maximums — e.g., “No director can receive more than $X in cash awards per year” — companies force transparency around the total dollar value directors might receive. This is intended to help investors judge whether director compensation is reasonable.
  • Negative Overriding Feature:
    • ISS introduced a negative overriding feature to recommend against equity plans that lack sufficient positive features but still have passing scores under the EPSC. This means that ISS is introducing a “deal-breaker” condition for equity plans.
    • ISS identified numerous cases for plans evaluated under the EPSC in which an overall passing score was reached despite the plan proposal receiving a very poor or zero plan features pillar score. The implementation of the new negative overriding feature now means that even if a company’s plan technically earns enough points to pass the EPSC, ISS can recommend voting against the plan if it does not include enough of the features that ISS believes matter most (such as minimum vesting periods, rules that prevent discretionary vesting by management, restrictions on paying dividends on unvested awards, transparent change-in-control vesting terms and cash-denominated award limits for non-employee directors).
    • If a plan lacks enough of these features, ISS may take a hard line and recommend shareholders vote against it because it views the plan as deficient in protecting shareholder value even if other quantitative scores look fine.
• Social and Environmental Shareholder Proposals: Social and environmental shareholder proposals (climate, diversity, human rights, political contributions) are now reviewed case-by-case, as opposed to previously being generally supported by ISS.
• Exclusion of Shareholder Proposals: ISS also released FAQs regarding procedures and policies (non-compensation), one of which addresses a company’s exclusion of shareholder proposals in light of the SEC’s statement on the Rule 14a-8 process for the 2026 proxy season. Under the new FAQs, companies choosing to exclude a proposal on “ordinary business” grounds should clearly explain why they believe that to be the case, and when there is precedent from the SEC or a court that appears relevant to the proposal in question, why they believe such a precedent does or does not apply. Companies choosing to exclude a proposal on the basis that it has been substantially implemented or that it conflicts with a proposal being put forward by the company should clearly explain their reason(s) for any significant deviations of the company’s relevant implemented practice from the terms of the shareholder proposal, or how it conflicts with the relevant proposal being put forward by the company. ISS notes that, in certain cases, failure to present a “clear and compelling argument for the exclusion of a proposal could be viewed as a government failure” that could, in certain circumstances, lead to a recommendation to vote against one or more agenda items (including against directors, certain committee members or the entire board of directors).

Glass Lewis:

• Pay-for-Performance Methodology: Glass Lewis updated its 2026 Benchmark Policy Guidelines to enhance and modify its pay-for-performance model. Previously, Glass Lewis’s model consisted of a single letter grade of “A” through “F.” The new pay-for-performance scorecard replaces the letter grades and instead, now consists of a scorecard-based approach of up to six tests. The tests will be evaluated and rated individually, then aggregated on a weighted basis to determine an overall score ranging from 0 to 100. The six new tests are:
  • CEO granted pay vs. total shareholder return
  • CEO granted pay vs. financial performance
  • CEO short-term incentive payouts vs. total shareholder return
  • Total named executive officer granted pay vs. financial performance
  • CEO compensation-actually-paid vs. total shareholder return
  • Qualitative features
• Mandatory Arbitration Provisions: Glass Lewis’s policy now includes a discussion on its approach to mandatory arbitration provisions. When evaluating companies’ governing documents, Glass Lewis will review whether the company has adopted a mandatory arbitration provision and, if so, Glass Lewis may recommend a vote against the election of the chair of the governance committee or the entire committee in certain circumstances. Glass Lewis will now generally recommend a vote against any bylaw or charter amendment seeking to adopt a mandatory arbitration provision, absent sufficient rationale and disclosure from the company.
• Clarifying Amendments: Glass Lewis’s updated policy also makes the following clarifying amendments:
  • Glass Lewis will generally recommend against the chair of the governance committee (or the entire committee) for amendments to a company’s governing documents that erode shareholder rights (e.g., limit shareholder proposals, limit the ability of shareholders to file derivative claims and switch to plurality voting in lieu of majority voting).
  • Glass Lewis will now evaluate proposed amendments to a company’s governing documents on a case-by-case basis. However, it will generally recommend voting “for” amendments that are unlikely to have a material impact on shareholders’ interests. Glass Lewis also clarified that it strongly opposes bundling multiple charter/bylaw amendments into one proposal because it prevents shareholders from reviewing each amendment on its own merit.
  • Companies seeking to abolish supermajority voting requirements are now reviewed on a case-by-case basis. Glass Lewis may oppose the removal of supermajority voting requirements to protect minority shareholders if a large or controlling shareholder exists.
• Shift Away From Single Benchmark Proxy Voting Guidelines (2027):
  • On Oct. 15, 2025, Glass Lewis announced that, starting with the 2027 proxy season, it would no longer issue single, uniform benchmark voting policy.
  • Historically, Glass Lewis published a single set of benchmark proxy voting guidelines — a “house view” — that stated how it generally thought investors should vote on common issues (such as director elections, executive pay and shareholder proposals), which many institutional investors used as the basis for their own voting decisions.
  • Starting in 2027, Glass Lewis will no longer issue a single, uniform benchmark voting policy. Instead, it plans to move toward customized voting frameworks tailored to each client’s own investment philosophy and priorities and offer multiple perspectives.
  • Since there will no longer be a single Glass Lewis rulebook to optimize against, registrants will need to focus more on what their actual large shareholders believe rather than assuming that Glass Lewis’s public policy reflects investor sentiment.

California Mandatory Climate Disclosure Developments (S.B. 219)

In September 2025, California enacted S.B. 219, which amended and clarified aspects of S.B. 253 (the Climate Corporate Data Accountability Act) and S.B. 261 (Climate-Related Financial Risk Act), the state’s recently adopted mandatory climate disclosure frameworks applicable to certain U.S. companies doing business in California. S.B. 219 builds on earlier legislation that requires covered entities to publicly disclose greenhouse gas (GHG) emissions and climate-related financial risks, even if the company is not incorporated or headquartered in California. As a result, these requirements may affect a broad range of public companies, including many SEC registrants with operations, revenues or other business activities in the state.

Among other things, S.B. 219 addresses implementation timing, enforcement mechanics and administrative oversight of California’s climate disclosure regime. While the amendments were intended to provide additional clarity and flexibility, significant uncertainty remains regarding the ultimate scope and enforceability of the requirements.

Multiple legal challenges have also been filed in federal court arguing that California’s climate disclosure laws are preempted by federal law, violate the First Amendment by compelling speech and impermissibly regulate interstate commerce. These cases remain pending, and courts have not yet provided definitive guidance on whether, or to what extent, the disclosure regime will be upheld or enjoined.

In parallel, companies are closely monitoring how California regulators will administer and enforce the disclosure requirements while litigation is ongoing, including whether compliance deadlines may be delayed or modified. The existence of active legal challenges, combined with potential changes to federal climate disclosure initiatives, creates a fluid regulatory environment that may continue to evolve over the coming year.

Considerations for Public Companies

Public companies should consider evaluating whether they are likely to be subject to California’s climate disclosure requirements based on revenue thresholds (discussed below) and business presence in the state, even if they are already preparing for or complying with other climate-related reporting regimes. Companies should also consider assessing the readiness of their internal data collection, controls and governance processes relating to climate metrics, including GHG emissions, and whether those processes are sufficiently robust to support public disclosure outside the SEC reporting framework.

Given the potential for overlapping or inconsistent disclosure obligations at the state and federal levels, registrants should continue to monitor developments relating to California’s climate disclosure rules, the status of related litigation and any future SEC action in this area. Early coordination among legal, finance, sustainability and internal audit teams may help position companies to respond efficiently as regulatory expectations become clearer.

Revenue Thresholds for California Climate Disclosure and Implementation Dates

Law/Requirement	Revenue Threshold (Global Annual Revenue)	Who Must Comply	Key Reporting Dates
SB 253 — GHG emissions disclosure	Greater than $1 billion	Companies doing business in California	• Annual disclosure of Scope 1 & 2 emissions: 2026 (reporting based on the 2025 fiscal year) • Scope 3 emissions disclosure begins in 2027 on a schedule to be determined by the California Air Resources Board
SB 261 — climate-related financial risk disclosure	Greater than $500 million	Companies doing business in California	• First biennial climate-risk report initially due Jan. 1, 2026 (biennial thereafter) • Enforcement has been paused/injunctive legislation pending appeal • Statutory deadlines remain Jan. 1, 2026, and every two years thereafter pending final judicial outcomes

As calendar year-end registrants begin preparing for the upcoming reporting and proxy season, the developments discussed above highlight the importance of early planning and careful coordination among legal, finance and governance teams. Registrants should consider whether changes in regulatory guidance, enforcement priorities, proxy advisory policies or market practices warrant updates to disclosure, internal policies or compliance processes. Given the evolving nature of the securities law landscape, registrants may also benefit from monitoring developments on an ongoing basis throughout the year rather than approaching these issues solely during filing season.

For questions about any of the topics discussed above, contact the authors, your McGuireWoods contact or a member of the firm’s Public Company Advisory Practice Group.