When AI Reads the Proxy: Governance Risk in 2027

Author: Lenin Lopez

Are public companies ready for a more fragmented, more customized and more data-driven proxy voting environment? We'll see in the 2027 proxy season.

This new environment will likely also leverage AI to an unprecedented degree. That doesn't mean AI will replace investor judgment or that proxy advisory firms will disappear. However, several developments suggest that the 2026 proxy season playbook won't be the one to take off the shelf for 2027.

These developments include:

• Large institutional investors are experimenting with internal voting tools.
• Proxy advisory firms are adjusting how they deliver voting recommendations.
• The US Securities and Exchange Commission (SEC) has stepped back from its historical role as an informal referee in many shareholder proposal exclusion disputes.

Proxy results have historically been an early indicator of shareholder dissatisfaction, board vulnerability, activism risk, derivative claim themes and securities litigation exposure. With all the potential changes on the horizon, however, those results may be more challenging to interpret.

Boards and management teams shouldn't view these developments as just a proxy mechanics issue; they can also be a governance and director and officer (D&O) risk issue. Importantly, as proxy voting becomes less standardized, technology is making it easier for investors to identify inconsistencies or governance concerns that could influence voting decisions and potentially expose boards to greater scrutiny.

The proxy voting environment is becoming less standardized

In January 2026, the media reported that the asset management arm of a major US financial institution planned to stop relying on external proxy advisory firms for US voting decisions and instead use an internally developed AI-powered platform.¹ Let's not overstate this move. It doesn't mean every large investor will abandon proxy advisors or that AI will determine votes without human involvement.

However, this may provide an important signal. Large institutional investors can now build a proprietary and tailored approach to proxy voting. For public companies, that could mean increasingly less value in asking, "What will the proxy advisor recommend?" and more value in understanding what specific shareholders care about.

The proxy advisory firms appear to be changing their approaches too.

Glass Lewis, one of the two largest proxy advisory firms, has announced that it plans to move away from a model centered on a single house-policy perspective and instead offer multiple voting recommendation options beginning in 2027. It specifically cites developments in AI, technology and increasingly divergent investor preferences as factors supporting greater customization.²

This development further weakens the assumption that companies can prepare for proxy season primarily by aligning with a standardized policy framework.

The other major proxy advisory firm, Institutional Shareholder Services (ISS), has also provided clues about where its policies may evolve. Its 2026 annual global benchmark policy survey sought market views on issues including director tenure and independence, reincorporation and governing-document changes, financial reporting frequency, long-term incentive disclosure, audit matters and climate-related disclosure.³ This is an area worth monitoring as the policy survey results precede ISS' voting policy changes.

Then we have the SEC, which has changed the shareholder proposal process. In August 2026, the SEC announced it would stop responding to company requests for its views on whether shareholder proposals may be excluded.⁴ Companies still have to comply with the shareholder proposal rules, but they will have less informal guidance from the SEC when deciding how to handle disputed proposals.

There's another development worth watching. In September 2026, the SEC went to court seeking to enforce a subpoena against ISS as part of an ongoing fact-finding investigation involving proxy recommendations and voting data.⁵ While this matter is between the SEC and ISS, continued regulatory scrutiny could still affect how companies, investors and proxy advisors engage with one another and how they exchange or document information.

Taken together, these developments point toward a less predictable proxy environment, more customized investor voting policies, less uniform reliance on benchmark recommendations, fewer informal SEC signals on shareholder proposal exclusions and greater scrutiny of the proxy-advisory ecosystem.

From a D&O perspective, that matters because governance friction rarely stays confined to the proxy statement.

What the 2026 proxy season signaled

The 2026 proxy season didn't produce a simple story. Environmental and social proposals continued to face headwinds, and support for many proposals remained limited. But governance issues proved more resilient.⁶

What's the appeal of governance proposals?

They're often easier to connect directly to board accountability, shareholder rights, management influence and long-term value. They may also provide proponents with a more palatable and less politically contested path for pressing concerns.

Even when proposals don't pass, they can still matter. For example:

• An independent chair proposal that receives meaningful support can signal concerns about board leadership, CEO influence, succession planning, performance or risk oversight.
• A shareholder rights proposal may reflect dissatisfaction with governance structure.
• Low director support may point to concerns about independence, over-boarding or committee performance, refreshment or responsiveness to earlier investor feedback.

For D&O insurers, these outcomes can become useful underwriting data points. Underwriters already evaluate stock performance, volatility, litigation history, board composition, executive turnover, disclosure controls and regulatory risk. Proxy results can add another layer by showing where investors are already expressing concern.

This information is also available to activists and plaintiffs' firms. If a company later experiences a stock drop, compensation controversy, cyber incident, AI-related event, regulatory issue or operational setback, prior proxy friction may become part of the claim narrative.

As for the relevance of proxy advisor recommendations in 2026, the voting data continued to show a significant relationship between recommendations and voting outcomes.⁶ That creates an important tension heading into 2027, which is that while the voting ecosystem may be becoming more customized, benchmark recommendations are unlikely to suddenly become irrelevant.

Why 2027 may feel different: AI changes the game

The 2027 proxy season will likely be less about satisfying a generalized market standard and more about explaining the company's governance choices to different investors operating under different voting frameworks.

Then we have AI.

Technology-assisted voting platforms and widely available generative AI tools are already making it easier for investors, analysts, activists, regulators, insurers and plaintiffs' firms to identify inconsistencies across proxy statements, reports and disclosures.

A company may say in its proxy statement that the board exercises robust oversight of a particular risk, like cybersecurity or AI. Its annual report may describe that risk differently. A board skills matrix may barely address the subject. A later event may suggest that management reporting to the board was more limited than the public disclosure implied.

None of those facts alone necessarily establishes a governance failure. Together, however, they help to create a narrative that activists and plaintiffs' firms can exploit.

That's one of the more important implications of AI for the upcoming proxy season. Companies shouldn't write disclosures to appease algorithms. They should assume that stale language, inconsistencies and unexplained changes are becoming easier to identify.

Boilerplate governance disclosure that once disappeared inside a lengthy proxy statement may become far more visible when compared against prior-year disclosures, peer practices, voting results, enforcement developments and later events. With AI, those comparisons can be made in seconds.

Shareholder proposal proponents are also likely to adjust. If environmental and social proposals continue to face resistance, proponents may reframe these concerns as governance, accountability, risk oversight, financial materiality, director expertise or shareholder rights issues. That approach may be particularly relevant for issues involving AI, cyber, human capital, supply chain risk, compensation and board expertise.

The SEC's approach to proposal exclusions adds another layer of uncertainty. Without the traditional no-action response process, companies may need to think more carefully about investor reaction and governance implications when deciding how to respond to a disputed proposal.

For boards, a key concern for 2027 will likely be the governance signals that investors, proxy advisors, activists, plaintiffs' firms, regulators and insurers may draw from the same facts.

Why proxy changes are a D&O insurance issue

Proxy season outcomes don't determine D&O insurance terms on their own, but they can influence how others view a company's governance risk.

For example, a company with repeated low director support, a weak say-on-pay result, significant support for governance proposals, a controversial proposal exclusion or visible investor frustration may face more underwriting questions. Those questions can become more pointed when combined with stock volatility, executive turnover, internal control issues, litigation, regulatory inquiries, cyber events or public statements around AI.

Proxy season friction can also become part of the factual backdrop in later claims. For example:

• A derivative complaint may cite board oversight concerns.
• A books-and-records demand may focus on how the board considered a known risk.
• An activist may cite prior voting outcomes as evidence that shareholder concerns were ignored.
• A securities complaint may compare public governance statements with what allegedly occurred inside the company.

This is where the legal and insurance perspectives can converge.

Good governance doesn't eliminate litigation risk. However, a thoughtful process, accurate disclosure and a clear board record can help a company tell a more credible story when challenged.

Companies should also be cautious about expansive descriptions of board expertise, oversight and risk-management capabilities when the underlying board processes and reporting structures may not support those statements.

For directors, it may also be worthwhile to understand the personal protection side of the equation as well. Governance disputes can evolve into derivative claims or other matters where individual directors are named. In those circumstances, indemnification, advancement rights and D&O insurance coverage can become critical.

The more the proxy season becomes a forum for challenging board accountability, the more important it is for directors to understand not simply whether the company has D&O insurance, but how the program protects them if the company can't or won't indemnify them.

Questions worth asking now

Public companies don't need to wait until the 2027 proxy season is underway to prepare. The following are a few practical questions that can help boards and management teams connect proxy readiness with D&O risk:

• What did the 2026 proxy season, including shareholder engagement and voting results, tell us about investor and stakeholder concerns?
• Were there directors, proposals or compensation matters that received lower-than-expected support?
• Are we relying too heavily on alignment with proxy advisor policies instead of direct engagement with our largest shareholders?
• Do we understand how our largest investors may vote if recommendations become more customized?
• Are our proxy disclosures consistent with our annual report, cyber disclosures, AI statements, sustainability materials, investor presentations and website?
• Do our board oversight disclosures match the board's actual reporting and escalation processes?
• Do we have a framework for deciding whether to include, exclude, negotiate or litigate shareholder proposals?
• Are our D&O insurance program, indemnification agreements and advancement rights appropriate for the company's current risk profile?

To be clear, these questions aren't just for the legal department to answer. The CFO, investor relations team, corporate secretary, risk manager and board should all have a role in understanding how proxy season results fit into the company's broader governance and risk story.

The takeaway

The 2027 proxy season may end up being more data-driven and company-specific. That makes governance processes, investor engagement, disclosure and the board record more important — not less. The companies best positioned for 2027 will be those that understand what their proxy results and governance disclosures are signaling before stakeholders, plaintiffs' firms, activists or regulators tell the story for them.

Published September 2026