3/17/2026
Opinion: The New Rules of Engagement: Trends Reshaping Shareholder Activism in 2026
Financier Worldwide (03/17/26) Lu, Carmen
"Activism activity reached new record levels in 2025 as market volatility and an influx of new entrants fueled new campaigns. With M&A activity continuing to rebound and creating new pathways for near-term value creation, activism activity is likely to remain elevated in 2026. However, activists are now operating in a much changed regulatory and investor environment compared to a year ago. Such changes will likely influence when and how activists launch campaigns and the degree of leverage activist shareholders are able to exert over their public company targets," says Carmen Lu, partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. "In particular, the U.S. Securities and Exchange Commission’s (SEC) efforts to rein in the influence of the largest index funds and proxy advisers have already had consequential impacts on shareholder engagement and voting behavior that may influence the outcomes of this year’s shareholder meetings. Moreover, the SEC’s clampdown on shareholder proponents, as evidenced by its retreat from the adjudication of no-action relief for the 2025-26 proxy season and opposition to the use of voluntary exempt solicitation notices, underscore an ongoing recalibration in the balance of power and influence between public companies and their shareholders. Recent developments are altering not only how activists pursue their objectives, but also how boards, management teams and long?term investors evaluate risk and approach preparedness. The cumulative impact of today’s investor and regulatory environment could encourage a shift toward a more calibrated form of shareholder activism, where activists focus greater attention on 'winning' over fellow shareholders, boards and management teams with their ideas, and may increasingly seek to do so outside the regular proxy cycle calendar. Meanwhile, the threat of a proxy contest may become a less compelling lever to drive change within companies. Below we discuss five trends that are likely to exert the greatest influence on the shareholder activism landscape in 2026 and highlight considerations for companies navigating today's activism environment. The third and fourth quarters of 2025 saw the highest level of M&A activity since the pandemic. The recent M&A rally has been characterized by a reacceleration in sponsor buyout activity, an uptick in transformative strategic acquisitions and a record number of announced separations. Together, these trends have created ideal conditions and momentum for a rebound in M&A activism in 2026 – a reversal of the past three years which saw operational and capital allocation theses gaining ground over M&A. Regulatory and market conditions which dampened M&A activity in recent years have eased over the past year. Strategic acquirers are now revisiting and executing transactions that once faced significant regulatory obstacles. Financial acquirers, previously hamstrung by high interest rates, are now seeing financing conditions improve and valuation gaps narrow. Moreover, as companies look to drive margin expansion in a slower growth environment, tuck-in acquisitions are increasingly sought after. Over the coming months, activists may look for targets among companies whose announced transactions have not been favorably received by the market, companies that are potential targets for strategic or financial acquirers, companies that could be targets for a break-up, as well as companies where M&A has become a strategic imperative to drive growth. Activists may seek to insert themselves into or accelerate M&A discussions, oppose announced transactions, engage in bumpitrage, push companies to undertake a review of strategic alternatives and team up with financial sponsors to instigate a buyout. Preparing for and responding to M&A activism can be uniquely challenging. Unlike campaigns centered around operational, capital allocation or governance demands, boards and management teams face greater legal constraints and heightened market scrutiny when engaging in conversations relating to M&A. Clear investor messaging, including articulation of strategic priorities, business synergies and transaction rationale will help ensure the company remains well-positioned to respond to activist pressure. Recent years have seen a steady uptick in the number of new entrants and occasional participants in activism campaigns. This trend is likely to continue into 2026. A key driver of the growing universe of activist players is the continued maturation and growth of established activist funds which have, in turn, spawned new activist funds from their portfolio manager ranks. A number of recently formed activist funds have emerged from some of the most well-known players in activism. For example, Elliott Management’s alumni have gone on to found Irenic Capital Management, Palliser Capital, and Finch Bay Capital, while two former ValueAct partners recently launched Fivespan Partners. Charlie Penner, a former partner at Jana Partners and Engine No. 1, started his own fund Ananym Capital Management in late 2024, as did Ed Garden, a long-time partner at Trian, who founded Garden Investments. In 2026, market conditions remain ideal for fund formation: the rebound in M&A coupled with ongoing market volatility and strong allocator demand will likely continue to create opportunities for new entrants. There could also be an uptick in ‘dabblers’ looking for opportunities created by the rebound in M&A activity. The increase in the number of activist funds will continue to help fuel activism activity, particularly at small and mid-cap companies, which are the frequent targets of newer entrants. And given the fundraising pressure many new entrants face, their strategy and objectives when engaging with companies may be as much concerned with achieving public recognition and credit as generating investment returns. The continued emergence of new entrants underscores the need to remain vigilant when monitoring investor inbounds, shareholder ownership and trading activity. With many of the newer players coming from long-established funds, their lack of track record may belie a depth of experience and sophistication when engaging with boards and management teams. In February 2025, the SEC issued revised guidance on the eligibility of the largest institutional investors to report their ownership on schedule 13D. Since then, the tone and cadence of investor engagement has become more subdued with the largest institutional investors hewing closely to proxy voting policies and adopting a more reactive approach to engagement meetings with companies. Regulatory pressure on the largest passive institutional investors to remain ‘passive’ has not relented. In a November 2025 interview, Paul S. Atkins, chair of the SEC, emphasized that passive investors “get out of line...where they act to try to influence management” and indicated that the SEC is examining the influence wielded by the largest institutional investors through their proxy voting power. And in January this year, Brian Daly, director of the investment management division at the SEC, questioned whether index funds “taking positions on fundamental corporate matters, or on precatory proposals, is consistent with their investment mandates.” As the SEC looks to recalibrate the influence of the largest institutional investors, the impact of such efforts may be felt at this year’s annual meetings. Historically, the largest passive investors have voted closely with management. The SEC’s scrutiny of their voting behavior may further encourage support for management and create a heightened burden on these investors to justify the instances where they decide to oppose management. With the largest institutional investors likely tilted even more heavily in favor of management this year, activist investors may find it less desirable to pursue a proxy contest at companies with sizeable institutional investor ownership. Activist focus will likely shift further toward winning over the actively-managed funds whose votes will play an even greater role in determining the outcome of proxy contests. With proxy fights more costly to run than before, most of today’s campaigns resolve through negotiated settlements rather than proxy fights. Accordingly, activists have calibrated their demands to reflect what is practicable in a settlement outcome, while boards weigh the benefits of an early compromise against the costs and distraction of a proxy contest. This dynamic has produced an informal equilibrium that has limited large-scale board turnover but which may also sustain elevated activism activity by slowing or limiting the degree of change an activist can accomplish during any single campaign. Consequently, the ‘peace’ obtained through settlements may resemble more of a temporary truce rather than a permanent resolution for as long as an activist continues to see opportunities to generate additional returns. Ongoing regulatory pressures on proxy advisory firms will likely see their influence wane over time. The Trump administration’s executive order last year against ISS and Glass Lewis explicitly empowers federal agencies, including the SEC, to take action to limit the influence of proxy advisers in the coming year. In the near-term, the waning influence of proxy advisers is most likely to be felt with respect to the level of support for environmental and social shareholder proposals – both ISS and GL have supported such proposals at a significantly higher level than the largest institutional investors. Over the medium to longer-term, the SEC’s continued scrutiny of robovoting may accelerate the ongoing shift away from ‘one size fits all benchmark’ proxy voting policies to policies tailored for individual institutional clients. The expansion of custom voting policies could be highly consequential for investor voting practices, shareholder engagement, and the tactics and outcomes of future proxy contests. More importantly, in future proxy contests, securing the support of ISS and GL may decrease in importance relative to targeted engagement with a broader swath of institutional investors, who through their custom voting policies, will be driving vote outcomes. In 2026, the shareholder activism landscape is being reshaped by a resurgence of M&A?driven campaigns, a growing activist field, regulatory pressures on passive investors, settlement dynamics and the declining influence of proxy advisers. Together, these trends point to a robust activism environment that could be characterized by greater activist focus on earlier constructive engagement with boards and management teams, and less dependence on the threat of a proxy contest."
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