The Trump administration gets it right on limiting the power of proxy advisory firms such as ISS and Glass Lewis

The Trump administration is reportedly preparing an executive order to limit the power of proxy advisory firms like ISS and Glass Lewis, coinciding with an FTC antitrust investigation into their practices, actions which the article's authors strongly endorse as long overdue. The piece highlights systemic issues including rampant conflicts of interest, an outdated and empirically unsupported checklist methodology, and frequent factual errors, echoing concerns from prominent figures such as Jamie Dimon and Elon Musk. The authors contend that these firms' undue influence on corporate governance necessitates regulatory intervention.

Analysis

The Trump administration is reportedly preparing an executive order to limit proxy advisory firms like ISS and Glass Lewis, coinciding with an FTC antitrust investigation into their practices. This regulatory push, which the article's authors strongly endorse as "long overdue," signals a significant governmental focus on corporate governance oversight. The actions aim to address the perceived "undue influence" of these firms, as highlighted by figures like Jamie Dimon.

Key criticisms include rampant conflicts of interest, where firms sell advice to both institutional investors and corporate management, creating an appearance of "pay to play." Additionally, the article points to an "outdated checklist approach" utilized by inexperienced staff, leading to recommendations based on "superstition not fact," exemplified by high governance scores for scandal-ridden companies like Enron.

The analysis further cites "rampant factual errors," such as miscalculating Disney CEO Bob Iger's stock performance and incorrect board recommendations, demonstrating operational sloppiness. While early proxy advisors were beneficial, the current landscape shows firms like ISS frequently changing hands (eight times in three decades), suggesting a decline in their own governance and long-term value focus.

Key Decisions for Investors

• Investors should closely monitor the progression of the executive order and FTC investigation, as reduced influence of proxy advisory firms could significantly alter corporate governance dynamics and shareholder voting outcomes.
• It may be prudent to increase independent due diligence on management proposals and board nominations, rather than relying solely on proxy advisor recommendations, given the highlighted issues of conflicts of interest and factual inaccuracies.
• Consider how potential regulatory changes might impact activist investor strategies and the overall balance of power between management and shareholders, particularly for companies with upcoming proxy contests or significant governance issues.