proxy advisor reforms will put more emphasis on board operations
In October 2025, Tesla CEO Elon Musk deployed provocative language characterizing proxy advisors as ‘corporate terrorists’ following ISS’s recommendation that shareholders reject his proposed $1 trn compensation package. Musk argued that ISS and Glass Lewis ‘have no actual ownership themselves’ yet effectively control corporate governance outcomes through their recommendations to investors. This identifies a genuine agency problem: proxy advisors bear no economic consequences from their recommendations.
JPMorgan Chase CEO Jamie Dimon in his 2024 annual shareholder letter and subsequent public statements, characterized proxy advisors as ‘incompetent’. Dimon cited three fundamental failures: incorrect or incomplete information, lack of accountability and commercial coercion. He noted that ‘companies can engage their services to enhance their corporate governance scores,’ implying companies can essentially buy favorable voting treatments.
Over the last 25 years the recommendations of proxy advisors have drawn the line between right or wrong in corporate governance. No company liked to see headlines in the financial press with the recommendation of ISS and Glass Lewiss against a company’s proposal at the AGM.
This controversial role, highly unregulated, is to change dramatically from now on, at least in the US. In December, President Donald Trump signed an executive order directing federal agencies to increase regulatory oversight of proxy advisory firms ISS and Glass Lewis – which collectively dominate over 90 percent of the US proxy advisory market. The order alleges these firms exercise ‘undue influence’ through ‘radical politically motivated agendas’ prioritizing ESG and DE&I factors over investor returns.
The foreign ownership structure of those companies is central to the Trump administration’s critique. The executive order specifically emphasizes that ISS is ‘foreign-owned,’ raising national interest concerns regarding whether American corporate governance should be determined by overseas-controlled entities. ISS is majority-owned by Deutsche Börse, Germany’s stock exchange, through the parent company ISS STOXX. Glass Lewis is owned by Peloton Capital Management, a Canadian private equity firm that acquired the company in 2021 from two Canadian pension funds.
The order cites ‘significant concerns about conflicts of interest and the quality’ of their recommendations, due to the dual business model of those companies. ISS operates two distinct but interconnected business divisions. The governance research division provides voting recommendations to institutional investor clients. Separately, the consulting services division offers companies guidance on compensation structures, equity plan design and board governance practices aligned with ISS’s voting preferences. This dual-service model creates inherent conflicts of interest, despite ISS implementing structural protections between consulting business and research division. The absence of a consulting business at Glass Lewis reduces certain conflicts.
ISS and Glass Lewis have defended themselves against allegations of ideological bias or political capture. Effective from 2026, ISS announced it would no longer generally recommend voting ‘for’ environmental and social shareholder proposals, instead evaluating such proposals case-by-case accounting for company-specific circumstances. This represents substantial policy reversal from prior years, when its default posture favored affirmative votes on environmental and social initiatives. Glass Lewis announced discontinuation of its long-standing ‘benchmark’ voting policy effective 2027. Rather than issuing standardized voting recommendations applied uniformly across all clients, Glass Lewis will offer customized voting policies tailored to individual institutional investor clients’ specific stewardship objectives and investment philosophies.
Almost at the same time as Trump’s executive order, the SEC’s Division of Corporation Finance announced a fundamental inversion of its Rule 14a-8 oversight approach. Historically, the SEC exercised gatekeeping authority, reviewing companies’ requests to exclude shareholder proposals and requiring demonstration that proposals violated specific exclusion criteria before authorization to omit proposals from proxy materials. The commission announced it would no longer provide substantive guidance on shareholder proposal exclusion requests, except for proposals claimed improper under state law. Companies may exclude proposals based on their unqualified representation that they possess ‘reasonable basis’ under Rule 14a-8, with the SEC merely confirming lack of objection to company-provided rationale.
The combination of proxy advisor restrictions and shareholder proposal de-regulation reflects a fundamental ideological shift from ‘shareholder capitalism’ toward ‘managerial capitalism’ by systematically constraining shareholder mechanisms while leaving board authority untouched.
Under shareholder capitalism frameworks prevailing during the 2000s, boards operate as agents of shareholders. Ultimate authority vests in shareholders through voting mechanisms including director elections, fundamental transactions and advisory resolutions. Institutional investors and activists exercise this authority through proxy contests, engagement campaigns and shareholder proposals.
Under managerial capitalism frameworks, boards exercise substantial autonomous authority over strategy, with shareholders relegated to check-writing function. Shareholder voting rights are treated as potential sources of distraction and short-termism rather than legitimate governance authority.
The implications for corporate governance and investor protection are huge. The new rules consolidate power in boards and executives while diminishing mechanisms through which shareholders exercise governance influence. Boards gain unilateral authority to determine which governance issues merit attention – and which constitute distracting ‘political’ activism. We should not forget that the distinction between financial and non-financial governance is inherently contestable: climate risks affect financial returns, workforce practices affect labor costs, board diversity affects decision quality and compensation structures affect incentive alignment.
The new regulatory environment creates divergent implications for large versus small institutional investors, widening governance analysis capacity gap between them. BlackRock, Vanguard and State Street collectively manage assets exceeding $20 trn and hold voting stakes in vast majority of S&P 500 companies. The scale of these firms’ shareholdings justifies substantial investment in independent governance research infrastructure. The fixed cost of governance research infrastructure amortizes across trillions of assets under management.
Smaller and mid-sized asset managers face substantially different economics. Building internal governance research teams capable of analyzing thousands of annual proposals (evaluating compensation benchmarks, assessing board independence and analyzing ESG risks across multiple jurisdictions) exceeds economic capacity of these firms. Consequently, smaller managers have historically depended on proxy advisor services as cost-effective outsourced governance analysis.
Trump’s executive order represents a crucial moment in US corporate governance. Rather than implementing targeted regulatory reforms addressing specific proxy advisor deficiencies, the measures systematically constrain shareholder mechanisms while elevating board authority. Eliminating proxy advisor influence – without establishing superior alternatives – risks exacerbating governance quality deterioration, particularly for smaller investors lacking independent analysis capacity.
The new environment for investors demands heightened vigilance regarding board accountability. The infrastructure through which shareholders have exercised governance influence during the past two decades has been substantially weakened. Investors must compensate through expanded engagement, transparency demands and strategic deployment of remaining mechanisms – director elections, litigation and engagement campaigns – to maintain meaningful governance participation in an increasingly board-centric system.
Ricardo Jiménez Hernández is strategic adviser at Harmon and a former director of investor relations at Ferrovial. He is also a member of the IR Impact editorial board
