For decades, proxy advisers ISS and Glass Lewis have helped shareholders navigate voting at America’s largest companies. Now the US government is moving to scale back their influence, casting the firms as ‘foreign-owned political actors’. Governance specialists warn the shift risks weakening shareholder oversight well beyond the United States.
President Donald Trump last month ordered US regulators to reassess the role of proxy advisers. The move specifically targets Institutional Shareholder Services (ISS), owned by Germany’s Deutsche Börse, and Glass Lewis, controlled by Canadian private equity firm Peloton Capital Management.
The White House says the firms wield outsized influence over American companies and have pushed “radical political agendas” tied to environmental, social, and governance (ESG) frameworks as well as diversity, equity and inclusion (DEI).
“Taken together, the proposals and measures coming out of the US point in one clear direction: a shift of power from shareholders to company directors,” said Rients Abma, executive director at Eumedion, which represents institutional investors in Dutch listed companies.
SEC, FTC ordered to investigate
Trump has ordered the Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC) and the Secretary of Labor to figure out how to “stop proxy giants from using Americans’ 401(k)s, IRAs, and pensions to force leftist policies on US companies.”
Abma said the order could weaken checks and balances at listed companies: “It also reflects the current political climate, with more power concentrated in the strong – or autocratic – leader and less countervailing force, including inside public companies.”
Douglas Chia, a governance lawyer and president at Soundboard Governance LLC agrees: “Congress, and now the SEC, enabled by the president, are on a mission to shut down shareholder proposals. They’re not hiding that.”
“This fits a broader pattern,” he added. “You see it with immigration, with tariffs. They push things to the edge and dare the courts to stop them.”
The real sway of ISS and Glass Lewis
On paper, the two firms are dominant. Together, they account for more than 90 percent of the proxy advisory market in the United States. Most large institutional investors subscribe to at least one of them to get through the annual proxy season.
But scale does not necessarily translate into control. Data from the Council of Institutional Investors, a US group representing large pension funds and long-term asset owners, shows that proxy advisers flag risks rather than determine outcomes. In 2024, ISS recommended voting against 8 percent of say-on-pay proposals at S&P 500 companies. Glass Lewis recommended voting against roughly 11 percent. Yet about 99 percent of those pay packages were approved by shareholders.
In November both ISS and Glass Lewis recommended shareholders vote against Elon Musk’s compensation package of 1,000 billion dollars, but shareholders approved the package anyway. The voting recommendations prompted Musk to call proxy advisers “corporate terrorists” and accused them of ideological bias.
Proxy advice is not irrelevant however. Academic research from the University of Utah shows that when a proxy adviser recommends voting against management, its clients are around 20 percentage points more likely to oppose management than other investors.
Beyond Washington DC
A heavier regulatory burden is “likely to kill this highly necessary service”, said Christophe Nijdam, a former European research director for corporate governance at Proxinvest, a French proxy firm later acquired by Glass Lewis.
Nijdam, who is currently a member of the Banking Stakeholders Group of the European Banking Authority, warns that US moves to restrict the independence of proxy advisers could have consequences well beyond American markets. If Washington tightens the rules under pressure from large companies, he said, businesses in Europe are likely to push for similar curbs in the name of maintaining a “level playing field.”
According to Nijdam, that dynamic has already emerged in recent EU rollbacks of ESG requirements. He warned that further financial deregulation could follow, eroding safeguards put in place after the global financial crisis.
Accountability moves to investors
Proxy advisory firms have already shifted responsibility for voting decisions back to their clients. They are encouraging investors to develop their own voting policies and to use proxy advisers to execute those policies, rather than rely on a single house view.
Glass Lewis plans to drop its standard voting policy from 2027. Clients without their own policy will instead have to choose from four alternatives, ranging from guidelines that largely follow company board recommendations to frameworks centered on corporate governance or sustainability principles. ISS already offers seven specialized voting frameworks, including options aligned with board recommendations and a green voting policy.
According to Abma, these changes are designed to make proxy advisers more neutral and to push accountability for voting decisions onto investors themselves, reducing the firms’ political exposure.
As institutional investors adopt an increasingly diverse range of voting guidelines, annual general meeting voting outcomes will become less predictable. “As a result, companies will need to engage with a much broader set of investors, including clients of large asset managers such as Blackrock, Vanguard and State Street”, said Abma.
Softer calls, smaller profits
Law firm Sullivan and Cromwell predicts that the executive order could create meaningful changes to proxy season engagement practices and results in the coming years. In a memo, the firm wrote noted that “Some proxy advisory firms and asset managers have already announced changes to their business models.”
Chia said firms are likely to respond by softening their recommendations to avoid controversy, at the risk of making their product less valuable. “They’ve been watering things down,” he said, adding that advice could become so bland that “they might lose business because of that.”
According to Chia, proxy advice is a low-margin business with little room to absorb regulatory or political shocks. “That’s why ISS has changed hands so many times,” he said. “You actually can’t make a lot of money off of this.”