View or download a PDF of the factsheet here.
Proxy Advisors — What They Are And Why They Are Under Attack
Every year, public companies hold shareholder meetings where investors vote on a range of
ballot items — from electing directors and approving executive compensation to weighing in on
proposals filed by shareholders requesting companies address issues related to climate risk,
workers’ rights, racial equity, political spending, and other topics. Companies send shareholders
a proxy statement describing the votes that will be taken and the corporate leadership’s
position on each issue. Shareholders that do not attend the annual shareholder meetings in
person delegate their votes through shareholder proxy voting. For diversified investors that cast
votes on behalf of millions of passive investors saving for retirement and other purposes — like
pension funds and mutual funds that invest across the S&P 500 — it means voting on thousands
of ballot items.
Proxy advisors like Institutional Shareholder Services (ISS) and Glass Lewis help investors
analyze thousands of corporate ballot items. They are information intermediaries, simplifying
the often overwhelming proxy season — the months of the year where most shareholder
meetings occur — by providing investors with independent research and voting
recommendations. Proxy advisors’ recommendations are just that — recommendations.
Investors are free to vote in whatever way they believe is in their best interest. Proxy advisors
are a resource that institutional investors use to make informed decisions and exercise their
voting rights on important issues that impact their investments, including climate risk, workers’
rights, and corporate governance.
Proxy advisory firms overwhelmingly recommend votes in line with management
recommendations. More than 95 percent of the time, proxy advisors supported companies’
board members in their benchmark policy recommendations (ISS recommended opposing only
4 percent of board members and Glass Lewis only recommended opposing 5 percent of board
members in 2023). The firms recommended opposing excessive executive compensation less
than 20 percent of the time (ISS only 11 percent and Glass Lewis 17 percent). The firms only
supported environmental and social shareholder proposals about one third of the time (ISS 37
percent and Glass Lewis 30 percent).
Big business interests such as the Business Roundtable and other entities representing
corporate management have railed against proxy advisory firms because of the infrequent
instances when proxy advisors recommend holding management accountable. These
recommendations to buck corporate leadership often stem from egregious risks to investors on
issues like excessive CEO pay, governance failures, climate risk, or racial inequity.
The attacks on proxy advisors are not about competition or antitrust, but rather about an
apparent attempt to manipulate or chill independent advice. Every subsector of the financial
system is controlled by a small handful of firms. This can lead to the exertion of anticompetitive
market power, distortion of the market, and harms to customers. But while the House Judiciary
Committee launched an antitrust investigation into ISS and Glass Lewis, the harms their reforms
purport to address have nothing to do with antitrust. The proposed policy solutions in bills
passed by the House last Congress and in a recent Business Roundtable report do not address
proxy advisor concentration or market power, but only shield companies from shareholder
accountability. The proposals make it more difficult for proxy advisors to oppose corporate
recommendations, for asset managers to vote against management recommendations, and for
shareholder proposals to come to a vote at all. These policies do not address monopoly power
or improve transparency or market competition, they merely suppress voting analysis.
These attacks on proxy advisors are a part of the larger “anti-ESG” campaign — an effort to
slow the energy transition, attack corporate progress on issues of racial justice and workplace
diversity, and roll back corporate commitments to labor protections. Environmental, social, and
governance (ESG) issues matter to shareholders, but there is a well-funded and well-organized
campaign led by top conservative political operatives to prevent shareholders from considering
ESG issues that have a real impact on investments. Prominent anti-democratic figures like the
Koch brothers, Leonard Leo, and Peter Thiel have provided funding and guidance to anti-ESG
efforts. The fossil fuel industry is also bankrolling this effort because it would rather let our
planet burn to increase short-term profits rather than adjust its business practices to stave off
the worst of the climate crisis and invest in the long term.
Proxy advisors provide independent, cost-effective analysis that is critical for responsible
investing and long-term risk oversight. The policies proposed by corporate management would
undermine the independence of the advice investors receive from their proxy advisors, making
it more likely that important risks will be left unaddressed. These attacks serve to further
insulate the management of public companies from investor input and accountability, not to
protect shareholders. Undermining proxy advisor independence only benefits corporate
interests and executives who don’t want to answer to their investors.
See also: AFR’s Letter Opposing Anti-ESG Bills (July 2023) (section II) and Hill Resource on
Anti-ESG Attacks (Aug 2024).