A new chapter begins
Proxy advisor regulation heats up
Proxy advisor regulation heats up
Congress, the SEC, business groups and individual states continue to try to curb the influence of proxy advisory firms, such as Institutional Shareholder Services (ISS) and Glass Lewis. In 2020, the SEC adopted rules regulating proxy advisors; the rules (and amendments to them) have faced several legal challenges. Developments this year include:
- In April, the House Financial Services Subcommittee on Capital Markets held a hearing to address concerns about the outsized influence of ISS and Glass Lewis, including questions about bias, accountability and oversight. And, in May, Republican members of the Senate Banking Committee sent a letter to the proxy advisors demanding more information about the firms’ foundations for their recommendations, potential for conflicts of interest, and processes used to develop and apply voting policies.
- Also in April, the Business Roundtable issued a white paper urging the SEC to enhance its oversight of proxy advisors and enforce standards for transparency and accountability.
- In August, Texas passed a law that would require proxy advisors providing voting advice regarding Texas companies to make detailed disclosures to shareholders and affected companies, and on the proxy advisors’ public website, when the proxy advisors’ advice: (1) isn’t based solely on shareholders’ financial interests (e.g., ESG and DEI), (2) is inconsistent with the board’s recommendations (even if based solely on shareholders’ financial interests) unless the proxy advisor provides a written economic analysis, or (3) is “materially different” from advice given to the company or to different clients on the same proposal.
Meanwhile, ISS and Glass Lewis have had some success in court; most recently:
- In July, the Court of Appeals for the District of Columbia blocked the 2020 SEC rules regulating proxy advisors.
- In August, a judge temporarily blocked the Texas attorney general from enforcing the law against ISS and Glass Lewis; a trial is set for February 2, 2026.
- The Texas Attorney General announced in September that it's investigating ISS and Glass Lewis “for potentially misleading institutional investors and public companies for violations of consumer protection law by issuing voting recommendations that advance radical political agendas rather than sound financial principles.”
is a Partner and Senior Legal Consultant in Mercer's Law & Regulatory Group (L&R) based in New York. She specializes in technical legal and regulatory issues affecting executive compensation and corporate governance. She focuses on SEC disclosure, tax, employment and change in control agreements, equity programs, and employee benefit issues that arise in the context of corporate transactions and initial public offerings.
is a Senior Legal Consultant in Mercer's Law & Regulatory Group (L&R) based in Washington DC. She provides expert analyses on a variety of US and Canadian compliance and policy matters, and advises clients on securities and corporate governance issues affecting executive pay in North America.
is a Parter and the Head of Mercer’s US & Canada Executive Rewards Practice. He advises US and Canadian companies’ Compensation Committees and senior leadership teams on a wide variety of executive compensation topics and Board of Director pay issues. In addition, he leads the go-to-market strategies, as well as the development of intellectual capital and technical solutions, for Mercer’s Executive Rewards Practice in the US and Canada.