President Donald Trump issued an executive order seeking to limit the influence of proxy advisory firms, part of a push to curtail how third-party firms attempt to sway the direction of public companies.
The executive order issued on Thursday directs the chairman of the Securities and Exchange Commission to review regulation relating to proxy advisers and consider “revising or rescinding those rules, regulations, guidance, bulletins, and memoranda that are inconsistent with the purpose of this order, especially to the extent that they implicate ‘diversity, equity, and inclusion’ and ‘environmental, social, and governance’ policies.”
The order mentions two such advisers — Institutional Shareholder Services Inc. and Glass Lewis & Co. — that provide guidance to institutional investors on how to vote at shareholder meetings. It claims they have “supported shareholder proposals requiring American companies to conduct racial equity audits and significantly reduce greenhouse gas emissions, and one continues to provide guidance based on the racial or ethnic diversity of corporate boards.”
“Their practices also raise significant concerns about conflicts of interest and the quality of their recommendations, among other concerns,” it adds. “The United States must therefore increase oversight of and take action to restore public confidence in the proxy advisor industry, including by promoting accountability, transparency, and competition.”
Thursday’s move is the latest example of how Trump and his allies in office have acted to target diversity and equity initiatives, efforts to address climate change and other practices in corporate America that conservatives have long bemoaned, and intensifies the administration’s scrutiny on proxy advisers.
ISS said in a statement that it will carefully review the president’s order and consider how to respond, including ways to mitigate any impact on clients to whom it provides research and recommendations.
“Our clients are sophisticated institutional investors, who determine how they wish to vote by selecting from a range of voting policies that guide our work on their behalf, or by creating customized policies for advice tailored to their own particular needs,” the adviser said. “ISS does not dictate or set corporate governance standards.”
Representatives for Glass Lewis didn’t immediately respond to messages seeking comment outside regular business hours.
ISS and Glass Lewis are already being investigated by the Federal Trade Commission over whether they may have breached US antitrust laws by offering shareholder advice on politically charged topics, according to people familiar with the matter.
The order issued by the White House also directs the FTC chair to consult with the US attorney general and “review ongoing State antitrust investigations” into proxy advisers to determine if there are any links to “violations of federal antitrust law.”
US Securities and Exchange Commission Chair Paul Atkins also said last month that the regulator will consider reforms for proxy advisers.
The House Judiciary Committee earlier this year demanded the firms hand over records to help it “evaluate the sufficiency of US antitrust laws to address competition concerns in the proxy advisory market.”
Senate Banking Committee Republicans have also probed ISS and Glass Lewis over potential conflicts of interest and political bias.
Earlier this year, Glass Lewis said that starting in the 2027 annual shareholder season, it would no longer give a “house view” on how investors should cast their ballots — ending a decades-long practice of providing benchmark recommendations.
Photo: Photographer: Aaron Schwartz/CNP/Bloomberg
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