A dip inside the nuance of the debate
I’ve spent much of the past week having conversations with governance people – and one very small proxy advisory firm – about their takes on the debate raging around the influence of the big two: ISS and Glass Lewis.
Recent weeks have seen talk of the ‘weaponization of shareholder proposals’; Elon Musk has famously described them as ‘corporate terrorists’; the Wall Street Journal reported that US President Donald Trump is considering an executive order to curb the power of the proxy advisors, as well as the fact that these two behemoths are facing an anti-trust investigation for their roles in driving ESG issues. But what’s the picture behind the hyperbole?
Speaking to people on the front lines of US corporate governance, it is clear that frustrations with the proxy advisory universe run deep. One interviewee talks of the two as being ‘opaque and extremely rigid in their approach,’ while pointing to ISS in particular as being ‘conflicted’ given the side business in consulting.
ISS for its part argues against the narrative of excess influence. In a statement to IR Impact for example, it explained that ‘while ISS recommended against roughly 12 percent of say-on-pay resolutions for the top 3,000 US companies in calendar 2024, just 1 percent failed to pass.’
Most of the conversations I’ve been having come down on the line of reform – or at least an acknowledgement that ISS and Glass Lewis have too much power in the market. But that doesn’t mean there isn’t nuance and an understanding that these giant players have a role to play. Interviewees also point to the fact that change is happening on the inside. One example of this is Glass Lewis’ October announcement that, from 2027, it will no longer issue benchmark vote recommendations. It will instead issue custom research based on client preferences.
At the same time, other interviewees point to the fact that many asset managers no longer have the capability to research all voting lines in-house, while others – quant investors were given as an example – might simply find in-house research a waste of time and resources given the rapid turnover of algorithm-picked stocks.
The story that I’m still trying to fit into my article is the view of the IRO. What the reality of engagement with ISS or Glass Lewis when one of these firms has recommended against your company on an issue? Or would you dedicate that time to investor outreach instead as you seek to shore up support? Get in touch if you’d like to share your experience. Or keep your eyes peeled for an in-depth piece on this, coming soon.
All this is nothing new of course. The debate around the role of ISS and Glass Lewis – and their influence in particular in corporate America but also elsewhere – began long before I started covering the world of investor relations. The difference this time is that it’s political.
