President Donald Trump on Dec. 11 signed an order directing the Securities and Exchange Commission (SEC) to review rules on proxy advisors, saying they wield influence that “prioritize radical political agendas over investor returns.”
Trump’s order directs the SEC to conduct a review and potentially revise or rescind any rules, guidance, bulletins, and memoranda related to proxy advisors that implicate “diversity, equity, and inclusion” or “environmental, social, and governance” policies.
Under the directive, the SEC must enforce anti-fraud provisions in securities laws against proxy advisors, evaluate whether they should be required to register as investment advisers or to provide increased transparency on conflicts of interest, and examine “whether proxy advisors serve as a vehicle for investment advisers to coordinate their voting decisions.”
The regulator is also required to assess whether investment advisers breach their fiduciary duties by hiring proxy advisors to advise on “non-pecuniary factors” in investment decisions and following their recommendations, according to a White House fact sheet.
As Alkdgra Fredly details below for The Epoch Times, in his order, Trump singled out two foreign-owned proxy advisors—Institutional Shareholder Services and Glass, Lewis & Co.—that advise clients on how to vote their shares, alleging they use their influence to advance “radical politically motivated agendas” by supporting shareholder proposals that require U.S. companies to conduct racial equity audits and reduce greenhouse gas emissions.
“Their practices also raise significant concerns about conflicts of interest and the quality of their recommendations, among other concerns,” the order states.
“The United States must therefore increase oversight of and take action to restore public confidence in the proxy advisor industry, including by promoting accountability, transparency, and competition.”
The order states that the Institutional Shareholder Services and Glass Lewis control more than 90 percent of the proxy advisor market, and their clients’ holdings represent “a significant ownership stake in the United States’ largest publicly traded companies.”
In addition, Trump instructed the Federal Trade Commission (FTC) chairman, currently Andrew Ferguson, to consult with the attorney general to review ongoing state antitrust probes into proxy advisors for violations of federal law and determine whether proxy advisors are engaged in “unfair methods of competition” or deceptive practices.
The Epoch Times reached out to both of the proxy advisors for comment and did not receive any response by publication time.
Institutional Shareholder Services is majority-owned by Deutsche Börse Group, a Germany-based company, while Glass Lewis is owned by Canadian private equity firm Peloton Capital Management.
JPMorgan Chase CEO Jamie Dimon said in his chairman and CEO letter to shareholders last year that the two companies are the main proxy advisors in the United States with potential “undue influence” on shareholder votes.
“These proxy advisors started out providing reams of data from companies to help their institutional investor clients vote on proxy matters (information on executive compensation, stock returns, detail on directors, policies and so on). However, they soon also began to provide advice on how shareholders should vote on proxy matters,” he stated.
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