Performance Focus Gives Boards a Pass, But Executive Pay Ignites Dissent

NEW YORK, NY – December 10, 2025 – The 2025 proxy season delivered a resounding vote of confidence for corporate leadership, with support for U.S. board director reelections soaring to a five-year high. Yet, beneath this seemingly tranquil surface of approval lies a significant recalibration in investor priorities, one that rewards strong financial performance while simultaneously sharpening the focus on executive compensation and fundamentally altering the landscape of shareholder engagement.

A new report from Diligent Market Intelligence (DMI), "Investor Stewardship 2025," reveals that overall director support climbed to 94.2%, a figure that rose even higher within major indices to 96.3% in the S&P 500 and 95% in the Russell 3000. This surge reflects a decisive shift by investors, including the largest asset managers, to back incumbent boards who have navigated strong, if complex, market conditions successfully. However, this broad support masks a more nuanced reality where specific committees and policies are facing unprecedented scrutiny.

A Decisive Shift Toward Financials

The primary driver behind this wave of support is a clear pivot toward rewarding bottom-line results. In a climate of economic uncertainty, where inflation and interest rate movements have kept markets on edge, investors are prioritizing financial resilience and operational execution over other considerations. This trend is evident in the voting patterns of the "Big Three" asset managers. State Street, for instance, saw its support for S&P 500 directors jump significantly to 95.4%, up from 92.7% in the prior season. Meanwhile, BlackRock and Vanguard maintained exceptionally high levels of backing, at 98.7% and 99.3% respectively.

"The Investor Stewardship report reveals a critical insight: investor support has decisively shifted toward rewarding financial performance," noted Josh Black, Editor-in-Chief of Diligent Market Intelligence, in the report's release. This sentiment suggests that as long as companies deliver strong returns, investors are more willing to grant boards latitude on other matters.

This laser focus on financials, however, corresponds with a notable retreat from the diversity mandates that gained prominence in recent years. The momentum appears to be slowing as investors and the ecosystem around them recalibrate their policies.

The Unintended Consequence for Board Diversity

One of the most telling indicators of this shifting landscape is the decline in the appointment of diverse directors. According to DMI's governance data, the share of newly appointed women directors fell from a high of 37% in 2022 to just 26% in the first half of 2025. This downturn is not occurring in a vacuum.

Research preceding the proxy season pointed to external pressures, including political shifts and "presidential orders," which prompted many institutional investors to remove explicit diversity targets from their voting policies. This was compounded by adjustments from influential proxy advisory firms like Institutional Shareholder Services (ISS), which cited "evolving market and governmental activity" as the reason for reducing the weight of diversity factors in their recommendations for U.S. director elections.

For companies, this presents a new set of challenges. The external pressure to meet diversity quotas has eased, potentially slowing progress on Diversity, Equity, and Inclusion (DEI) initiatives. Board recruitment strategies may now pivot back toward candidates with established track records in finance and operations, possibly at the expense of building a more broadly representative leadership team. While few would argue against the long-term benefits of diverse perspectives, the immediate message from the 2025 proxy season is that financial accountability has reclaimed its position as the paramount concern for a majority of shareholders.

The Paradox of Pay: Where Shareholders Draw the Line

While investors gave a pass to boards on a macro level, they demonstrated a willingness to target directors over one specific, contentious issue: executive compensation. The high tide of overall support did not lift all boats, particularly for those serving on compensation committees. This paradox reveals that shareholder deference has its limits, and excessive or misaligned pay remains a potent catalyst for dissent.

Among the 30 Russell 3000 companies that saw more than 50% of shareholders vote against their "say on pay" plans, a vast majority also experienced a decline in overall director support. This indicates a direct spillover effect, where dissatisfaction with compensation policy translates into votes against the directors deemed responsible.

The scrutiny was highly targeted. At S&P 500 companies, compensation committee chairs saw their average support dip to 94.5%, notably below the 96.3% overall average. Nomination committee chairs fared even worse, with their backing falling to 92.2%. This pinpoints where investors are focusing their ire, holding specific individuals accountable for decisions related to executive rewards and board composition. The primary drivers for this pushback were clear: misalignment between pay and performance, the granting of large discretionary or one-off awards, and a lack of sufficient disclosure and transparency in compensation reports.

A New Arena for Shareholder Engagement

The dynamics of shareholder proposals also underwent a significant transformation. Average support for shareholder-led resolutions continued to decline, particularly for those with an environmental or social focus. BlackRock, for example, supported a mere 2.4% of environmental-focused resolutions and 2.5% of social-themed proposals at Russell 3000 companies, marking a stark reduction from prior years.

Simultaneously, companies became more successful at preventing such proposals from ever reaching a vote. The 2025 season saw a record volume of "no-action" requests submitted to the U.S. Securities and Exchange Commission (SEC), with companies seeking permission to exclude shareholder proposals from their proxy materials. The volume of requests approved for exclusion jumped by 33%, creating a challenging environment for activists.

This entire process is set for a dramatic overhaul. Citing an overwhelming workload, the SEC recently announced it will not provide substantive responses to no-action requests for the upcoming 2026 proxy season. This landmark shift removes a key arbiter from the process, leaving companies and shareholders to navigate the rules more independently. The change could either embolden companies to exclude more proposals, risking litigation, or force them to include more to avoid legal challenges. For activists, it necessitates a strategic rethink, potentially pushing disputes from regulatory filings into the courtroom.

Despite the headwinds against certain types of proposals, the DMI report underscores that core governance issues remain a top investor priority. As Josh Black stated, "governance-focused proposals continue to resonate with investors with the most prominent asset managers recording average support upwards of 20% at the Russell 3000." This clearly signals that while the topics of engagement may be shifting, the fundamental principle of board accountability remains a non-negotiable pillar of modern stewardship.