The holiday season is here. As 2024 draws to a close, corporate boards across the United States are evaluating their priorities for the upcoming year. Top of mind are regulatory changes introduced or finalized by the U.S. Securities and Exchange Commission (SEC) in 2024 and those that will shape boardroom decisions in 2025 and beyond. Staying ahead of these regulatory shifts is essential for maintaining compliance, managing risk, and meeting shareholder expectations.

In this two-part series, we’ll break down the key SEC developments that boards must prepare for as they head into the new year.

Increased Focus on Cybersecurity

The SEC’s Cybersecurity Disclosure Rule, implemented in 2023, has since been clarified through additional guidance issued by the Director of the Division of Corporation Finance on May 21, 2024, and June 20, 2024. These statements aim to address ambiguities, prevent investor confusion, and improve the effectiveness of communicating cybersecurity incidents.

With cyber threats becoming increasingly sophisticated, both investors and regulators continue to demand greater transparency regarding how companies prepare for and respond to these challenges.

In a nutshell, under the Cybersecurity Disclosure Rule, companies are required to report significant cybersecurity incidents within four business days after confirming their materiality, as well as report annually on their cybersecurity risk management practices, including the board’s role in overseeing these risks.

While many boards may have acted in 2024 to comply with these requirements, the ever-changing nature of cyber threats necessitates continuous vigilance. Boards can stay ahead of emerging risks and maintaining compliance by:

• Regularly updating incident response protocols to ensure timely and accurate breach reporting.
• Evaluating the organization’s cybersecurity defenses to ensure alignment with regulatory expectations and industry standards.
• Investing in ongoing director education to keep the board informed on the latest cyber risks and best practices.

The evolving cyber threat landscape demands an agile and proactive approach from boards to safeguard both organizational assets and shareholder trust.

Shareholder Proposal Threshold Changes

The SEC rules regarding governing shareholder proposals make it easier for investors to bring issues to the table. Similarly to the Cybersecurity Disclosure Rule, Rule 14a-8 has been in effect for some time. Rule 14a-8 and its amendments lowered ownership thresholds and revised the resubmission criteria, enabling a broader range of shareholder concerns to reach proxy statements. However, the proposal topics are a clear reflection of shareholders’ – and broader society’s – concerns. The five most popular proposal topics in 2024, representing 34% of all shareholder proposal submissions, were climate change, non-discrimination and diversity-related, simple majority vote, director resignation bylaws, and independent chair.

The 14a-8 Rule and its later amendments streamline the process for shareholder proposals, clarifying grounds for exclusion and limiting resubmissions for proposals with insufficient support. Boards can expect the Rule to continue to influence shareholder engagements and annual meeting dynamics in 2025​.

As a result, boards should anticipate increased scrutiny on topics similar to 2024, including executive compensation, sustainability, and diversity.

What boards need to do in 2025:

• Engage proactively with shareholders to understand their priorities.
• Develop clear and compelling responses to anticipated proposals.
• Ensure the board’s decisions align with shareholder interests while supporting long-term value creation.

 Universal Proxy Rules in Action

The Universal Proxy Rules, which took effect in 2022, continue to reshape the dynamics of board elections. While 2025 is not the first year of their implementation, these rules remain an ongoing point of attention for boards due to their inherently dynamic nature. Activist investors’ priorities—often influenced by evolving societal, economic, and environmental trends—ensure that the impact of these rules is never static.

The Universal Proxy mechanism enables shareholders to vote for any combination of candidates from competing slates in contested director elections. By requiring the use of universal proxy cards, the rules standardize voting procedures, enhance transparency, and increase shareholder influence over board composition. This power amplifies the voices of activist investors, who are often guided by the issues of the times, from ESG considerations and climate action to digital transformation and operational efficiency.

The fast pace of societal and market changes in recent years means boards must continually adapt to stay aligned with shareholder expectations. Topics that dominate the public discourse—such as artificial intelligence ethics, sustainability, workforce diversity, or geopolitical risks—often find their way into activist agendas, making the Universal Proxy Rules a persistent challenge and opportunity for boards to address.

What Boards Need to Prioritize in 2025:

• Conduct Rigorous Board Evaluations: Ensure all directors bring the expertise necessary to address both long-term strategy and emerging priorities.
• Stay Ahead of Emerging Trends: Regularly assess activist trends and broader societal shifts that could influence shareholder interests and boardroom discussions.
• Strengthen Shareholder Relations: Engage openly and proactively with shareholders to address concerns before they escalate into activism.
• Prepare for Contested Elections: Develop a robust strategy to respond effectively to activist campaigns, including clear communication of the board’s values and vision.

The Universal Proxy Rules reflect the fluid nature of corporate governance, where the concerns of activist investors are deeply intertwined with the priorities of a rapidly changing society. Boards that remain adaptable, informed, and engaged will not only navigate contested elections more effectively but also reinforce trust with their shareholders in this evolving landscape.

Conclusion

The SEC’s regulatory agenda reflects a growing emphasis on transparency, accountability, and investor protection. For corporate boards, these changes represent both challenges and opportunities. By prioritizing compliance, engaging with stakeholders, and integrating these regulations into their broader governance strategies, boards can position their companies for success in 2025 and beyond.

As the new year approaches, now is the time for boards to take stock of their readiness to navigate this evolving regulatory landscape. Preparation today will ensure resilience tomorrow.

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