According to Forbes, the Federal Trade Commission has launched an investigation into whether proxy advisory firms violated antitrust laws, specifically targeting industry giants Institutional Shareholder Services and Glass Lewis. The Trump administration is simultaneously considering an executive order that would reduce these firms’ influence on shareholder voting. These developments come amid increasing scrutiny from prominent business figures like Elon Musk, who has publicly criticized proxy advisers. ISS was founded in 1985 in response to federal regulations requiring large institutional investors to vote on corporate matters. As financial markets grew more complex, institutional investors increasingly relied on these paid services to perform due diligence on companies in their portfolios.
The Unseen Force Shaping Corporate America
Here’s the thing about proxy advisers – they’re like the ghostwriters of corporate governance. They don’t own any shares themselves, yet they wield enormous influence over how trillions of dollars in institutional investments get voted. Think about it: massive index funds and pension funds hold positions in thousands of companies. There’s simply no way their internal teams can research every single shareholder proposal, director election, or executive compensation package. So they outsource that research to ISS and Glass Lewis.
Why Elon Musk Hates Them
Elon Musk’s very public battles with proxy advisers aren’t just celebrity drama – they highlight a genuine power imbalance. Remember when Tesla shareholders voted on Musk’s massive compensation package? Proxy advisers recommended against it, calling the deal excessive. Musk fired back, labeling them “corporate terrorists” in one of his characteristic social media outbursts. But he’s not wrong about their influence. When two companies control an estimated 97% of the proxy advice market, that’s basically a duopoly with extraordinary power over corporate America.
What This Means For Everyone Else
For institutional investors, this scrutiny creates uncertainty. They’ve built their voting processes around these recommendations for decades. If the FTC forces changes or the White House limits proxy advisers’ influence, funds will need to develop their own research capabilities – and that costs money. For corporate boards, it’s a mixed bag. Many executives feel hostage to proxy adviser recommendations that can make or break shareholder votes. But there’s also value in having independent third-party analysis. The real question is: when does helpful guidance become undue influence? As industry analysis shows, these firms have become so embedded in the governance ecosystem that untangling their influence won’t be simple.
The Regulatory Battle Ahead
This isn’t just about antitrust – it’s about the fundamental structure of corporate governance. The Harvard Law School has documented for years how proxy advisers effectively set governance standards across entire industries. And the National Association of Corporate Directors notes the complex relationship between boards and these influential firms. Now we’re seeing what happens when that power gets challenged at the highest levels. The outcome could reshape how corporate America governs itself for a generation.
