Holding Proxy Advisors' Feet To The Fire

Proxy advisors, and specifically ISS and Glass Lewis, are in the business of advising asset managers on whether to vote for or against the thousands of director nominees and proposals that are presented to shareholders each year. Together, they can influence approximately 30% of a company's votes. As the self-appointed quasi-regulators of public company corporate governance, this means they have the power to both write and enforce their own rule book on corporate governance. And because they charge companies for the proverbial corporate governance rule book and will recommend that asset managers vote against a company for failing to abide by said rule book, companies are beholden to follow the standards set by ISS and Glass Lewis.

This gives ISS and Glass Lewis an immense amount of control over U.S. public companies, and yet they are subject to very little regulatory oversight or accountability.

On April 24, 2025, I had the opportunity to testify (linked above) to the Texas State Senate Committee on State Affairs regarding the undue influence of proxy advisors and pending legislation, S.B. No. 2337, that seeks to bring transparency and accountability to the proxy advisor business. S.B. No. 2337 would require proxy advisors to clearly disclose when their advice to Texas-domiciled companies is based on non-financial factors such as ESG matters. It would also create a private right of action for companies and shareholders alike to challenge advisors for failure to comply with the rule.

Stepping back, this legislation is interesting for two reasons: First, it evidences the continuing effort to shape Texas into a business-friendly state.

Second, it reflects a broader, national effort to hold proxy advisors' feet to the fire. There is pending legislation in the U.S. House to address proxy reform and bring proxy advisors under the SEC's regulatory authority, and the U.S. House Judiciary Committee is investigating ISS and Glass Lewis for alleged antitrust violations, given they control a reported 97 percent of their market.

The proxy process is ripe for disruption and reform, and the proxy advisors are just one piece of the bigger puzzle.

Video provided by the Senate Committee on State Affairs (Texas). April 24, 2025.

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