On December 11, 2025, President Trump issued Executive Order 14366, "Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors" (the "Executive Order"), signaling a renewed focus by the Administration on proxy voting and the role of proxy advisory firms.
The Executive Order instructs federal regulators, including the Department of Labor ("DOL"), to review current policies and decide whether further regulatory or enforcement action is needed. The Executive Order aligns with the Administration's policy priority to limit the use of environmental, social, and governance ("ESG") factors in fiduciary decision making. Plan sponsors and fiduciaries should be aware of the shifting legal landscape as the vacillation in federal policy creates material compliance and litigation risks.
Background
Federal regulators have long been interested in proxy voting with some administrations focusing on shareholder rights and others on investor activism. Nearly every administration over the past 30 years has put their own gloss on the ERISA proxy voting rules.
In President Trump's first term, the administration sought to curb the influence of ESG factors in investment decision-making, and DOL issued a rule clarifying the fiduciary duties that govern proxy voting and the exercise of other shareholder rights for investments held by ERISA-covered plans. The 2020 rule emphasized that proxy voting is a fiduciary act under ERISA and clarified that fiduciaries do not need to vote every proxy, especially if doing so would not serve the plan's financial interest.
The Biden Administration reversed course and finalized a revised rule in 2022 that adopted a more permissive approach to ESG investing but, other than removing the statement that fiduciaries need not always vote, largely retained the provisions of the 2020 rule regarding proxy voting. The 2022 rule allowed ERISA fiduciaries to consider ESG factors in investment decision-making and encouraged proxy voting while emphasizing that such decisions must serve the plan's financial interests. The rule was the subject of multiple court challenges, and after taking over the defense, the Trump Administration announced it would be changing or rescinding the 2022 rule.
Fiduciaries' proxy voting obligations under ERISA were also the subject of two recent District Court orders in Spence v. American Airlines. Participants in 401(k) plans sponsored by American Airlines filed a class action suit against the airline and its benefits committee arguing that the defendants breached their duties of loyalty and prudence by allowing an investment manager to pursue ESG objectives in its proxy voting practices. In a decision published in January 2025, the court found that the defendants violated their fiduciary duty of loyalty (but not prudence) by allowing ESG factors to affect plan management, including proxy voting. In September 2025, the court determined that plan participants did not suffer monetary losses but imposed a variety of requirements on the plan related to the consideration of ESG factors and proxy voting. The court's legal positions are novel and arguably inconsistent with well-established ERISA jurisprudence. However, the court's skepticism that fiduciaries can consider ESG factors is likely consistent with the Trump Administration's views.
The Executive Order
Driven by White House concerns about proxy advisors' impact on corporate governance, the Executive Order directs DOL, the Securities and Exchange Commission ("SEC"), and the Federal Trade Commission ("FTC") to increase scrutiny of proxy advisors and proxy voting within their respective jurisdictions. The Executive Order states that two proxy advisory firms control 90% of the proxy advisor market and "regularly use their substantial power to advance and prioritize radical politically-motivated agendas — like 'diversity, equity, and inclusion' [("DEI")] and [ESG]."
The Executive Order directs the DOL to:
- Reassess the ERISA fiduciary rules to decide if proxy advisors should be treated as investment advice fiduciaries under ERISA;
- Strengthen the fiduciary standards for ERISA-covered retirement plans, including determining whether proxy advisors act solely in the financial interests of participants and the extent to which their practices may undermine the value of plan assets; and
- Enhance transparency regarding the use of proxy advisors, particularly with respect to ESG and DEI.
The Executive Order also directs the SEC to review and consider revising existing rules and guidance related to proxy advisory firms, enforce anti-fraud securities laws against proxy advisors with respect to their voting recommendations, assess whether proxy advisors should have to register as registered investment advisers, and examine whether registered investment advisers breach their fiduciary duties by hiring and relying upon proxy advisors. Separately, the Executive Order instructs the FTC, working with the Attorney General, to review current antitrust investigations of proxy advisors and investigate whether proxy advisors engage in unfair methods of competition or unfair or deceptive practices that harm consumers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
