Trump Administration Eyes Curbs on Shareholder Advisory Firms
The move could reshape corporate governance and follows critiques from executives like Elon Musk over the influence of firms like ISS and Glass Lewis.
A potential second Trump administration is reportedly exploring new rules to rein in the power of proxy advisory firms, a move that would reignite a fierce debate over corporate governance and the immense influence wielded by Institutional Shareholder Services (ISS) and Glass Lewis.
The initiative, which could take the form of an executive order, threatens to upend the established dynamics between corporate boards, management, and the institutional investors who own the majority of public companies. At the heart of the issue is the role these advisory firms play in guiding trillions of dollars in shareholder votes on critical matters ranging from executive compensation and board appointments to environmental and social policies.
For decades, ISS and Glass Lewis have operated as essential, if controversial, arbiters in the corporate world. Overwhelmed by thousands of proposals across their vast portfolios, large asset managers like BlackRock, Vanguard, and State Street rely on the research and voting recommendations of this duopoly to inform their decisions. This concentration of influence has drawn sharp criticism from business leaders and corporate advocates.
The push for new regulation follows high-profile complaints from executives like Tesla CEO Elon Musk, who has publicly criticized the firms for having excessive power. Critics argue that the advisors promote a rigid, one-size-fits-all approach to governance and have overstepped by championing environmental, social, and governance (ESG) proposals that may not align with maximizing shareholder value.
This is not new territory for the Trump administration. In 2020, the Securities and Exchange Commission under its leadership adopted rules requiring proxy advisors to give companies a chance to review and respond to their recommendations before they were sent to investors. However, those regulations were short-lived. The SEC, under the Biden administration, rescinded most of the key provisions in 2022, arguing they could compromise the independence of the advice.
A renewed effort could be more aggressive. According to a report from Benzinga, the administration is considering measures that would fundamentally alter how the advisors operate, potentially banning them from issuing recommendations on companies for which they also provide consulting services—a long-standing point of contention over conflicts of interest.
Proponents of the advisory firms, including many shareholder advocacy groups, view such a crackdown as a direct assault on investor rights. They contend that ISS and Glass Lewis provide a crucial check on corporate power, holding management accountable and giving a voice to shareholders. Some have framed the potential regulatory action as an “attack on shareholder property rights,” arguing it would entrench incumbent management and weaken oversight.
As the political landscape shifts, the debate over the role of these powerful intermediaries is set to intensify. Any significant change to the current system would have far-reaching consequences, potentially altering the outcomes of contentious shareholder votes and reshaping the balance of power in corporate America for years to come.