Proxy Wars

Background

On 11 December 2025, President Trump issued a long-awaited executive order (EO) entitled “Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors.” The EO refers to Institutional Shareholder Services (ISS) and Glass Lewis & Co. LLC as being foreign-owned proxy advisors that together control more than 90% of the proxy advisor market and “advise their clients about how to vote the enormous numbers of shares their clients hold and manage on behalf of millions of Americans in mutual funds and exchange traded funds.” 

Moreover, it says the two proxy advisor firms “regularly use their substantial power to advance and prioritize radical politically-motivated agendas—like ‘diversity, equity, and inclusion’ [(DEI)] and ‘environmental, social, and governance’ [(ESG)]—even though investor returns should be the only priority.” It cites examples of the proxy advisor firms supporting shareholder proposals on company racial equity audits, significantly reducing greenhouse gas emissions, and corporate board diversity guidance. 

The EO builds upon a report published by the House Financial Services Committee ESG Working Group (Working Group) in August 2024. The report, titled "The Failure of ESG: An Examination of Environmental, Social, and Governance Factors in the American Boardroom and Needed Reforms,” identified several factors the Working Group says led to the rise in ESG-related initiatives. One such factor is the proxy voting system. The report also highlighted the ISS and Glass Lewis “proxy advisory duopoly,” increasing scrutiny on the two firms. See here for a more detailed overview of the report. 

What’s In It

The EO directs the Chairman of the Securities and Exchange Commission (SEC) to “review all rules, regulations, guidance, bulletins, and memoranda relating to proxy advisors,” and consider revising or rescinding them pursuant to the Administrative Procedure Act, “especially to the extent that they implicate [DEI] and [ESG] policies.” The EO also directs the SEC Chairman to consider revising or rescinding all rules and guidance relating to shareholder proposals, including SEC Rule 14a-8. 

Further, the SEC Chairman is directed to:

• Enforce federal securities laws’ anti-fraud provisions with respect to material misstatements in proxy advisors’ voting recommendations;
• Assess whether to require proxy advisors’ activities to fall under the scope of the Investment Advisors Act of 1940, and therefore be registered as investment advisors; 
• Consider requiring proxy advisors to provide increased transparency on their recommendations, methodology, and conflicts of interest, particularly those regarding DEI and ESG factors; 
• Analyze whether a proxy advisor serves as a vehicle for investment advisors to coordinate and augment their voting decisions with respect to a company’s securities, and therefore form a group for purposes of sections 13(d)(3) and 13(g)(3) of the Securities Exchange Act of 1934; and
• Direct SEC staff to examine whether registered investment advisors engaging with proxy advisors to advise on nonpecuniary factors in investing, including DEI and ESG, is consistent with their fiduciary duties.

Additionally, the Chairman of the Federal Trade Commission (FTC) and the US Attorney General are directed to “review ongoing state antitrust investigations into proxy advisors and determine if there is a probable link between conduct underlying those investigations and violations of Federal antitrust law.” They are also directed to investigate whether proxy advisors engage in unfair methods of competition or unfair or deceptive acts or practices. 

Lastly, the Secretary of Labor is directed to “take steps to revise all regulations and guidance regarding the fiduciary status of individuals who manage, or, like proxy advisors, advise those who manage, the rights appurtenant to shares held by plans covered under the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. 1001 et seq.), including proxy votes and corporate engagement, consistent with the policy of this order.” The EO stipulates that the proposed revisions “should include amendments to specify that any individual who has a relationship of trust and confidence with their client, including any proxy advisor, and who provides advice for a fee or other compensation, direct or indirect, with respect to the exercise of the rights appurtenant to shares held by ERISA plans, is an investment advice fiduciary under ERISA.”

This final provision in the EO reflects a decade of back-and-forth policy changes between administrations. In 2015, the Department of Labor (DOL), under the Obama administration, released “Interpretive Bulletin Relating to the Fiduciary Standard Under ERISA in Considering Economically Targeted Investments,” authorizing ERISA plan fiduciaries to consider ESG-factors with a direct economic impact as part of their investment decisions. In response, President Trump signed Executive Order 13868 in 2019, directing the Secretary of Labor to review guidance from the DOL with respect to the “fiduciary responsibilities for proxy voting to determine whether any such guidance should be rescinded, replaced, or modified to ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets.” The following year, the DOL issued a proposed rule stating that ERISA requires plan fiduciaries to select investments and investment courses based solely on pecuniary factors. However, the final rule, Financial Factors in Selecting Plan Investments, was not finalized until after the 2020 election and it implicitly ratified much of the Obama-era DOL rationale (i.e., it acknowledged that sustainability considerations can impact pecuniary returns). The Biden-era DOL then reversed course again by issuing the “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” final rule, clarifying the “application of ERISA's fiduciary duties of prudence and loyalty to selecting investments and investment courses of action, including selecting qualified default investment alternatives, exercising shareholder rights, such as proxy voting, and the use of written proxy voting policies and guidelines.” Since returning to office, the Trump administration has sought to rescind this rule. 

Concluding Thoughts

The Trump administration and congressional Republicans have long sought to limit the influence of proxy advisors in the shareholder proposal process on the grounds that they divert resources from company operations and disincentivize private companies from going public. However, the primary reason privately held companies do not go public more often has to do with increasing costs in compliance and disclosure obligations for publicly traded companies. 

In short, policymakers’ focus on proxy advisors is seen by many investors as a proxy battle over shareholder rights and corporate disclosures writ large. An example of this dynamic can be seen in SEC Division of Investment Management Director Brian Daly’s recent speech on proxy advisors, which notes that an evolution in the SEC’s proxy rules over the last two decades “gave rise to a small oligopoly of proxy advisory firms with de facto power to impose their views on social and political matters upon a large portion of the American capital markets.” Additionally, he stated, “[I]n short, proxy advisors have acquired the ability to influence corporate policy and public company management, without having to buy a single share of stock, and have done so over time under the cover of a fundamental regulatory tenet that votes must be made in the best interest of the client.”

Therefore, we expect to see additional rulemaking and legislative activity on this front in 2026, as well as a DOL rule proposal in the near term. As in the past, it is likely there will continue to be litigation challenging each of these highly contested rules. In the meantime, investors and other key stakeholders should engage with regulators to help shape rules that will provide much-needed regulatory clarity and stability to capital markets. 

Related Resources

The firm has been and continues to be well positioned to assist clients in navigating this rapidly changing ESG policy landscape. To learn more about the current state of ESG in American public policy, as well as the firm’s role in this space, please visit our previous publications, including:

• Here We Go Again: Red States Continue to Focus on ESG;
• House ESG Oversight Focuses on Proxy Voting; Issuer Attention Is on CSRD;
• SEC Issues Long-Awaited Climate Risk Disclosure Rule;
• DOL Issues Proposed Rule on ESG Investing for ERISA Plans: Part 1: History and State of Play;
• The EU CS3D Trilogue Nears Conclusion;
• California Enacts Landmark ESG Legislation;
• GOP ESG Bills Await US House Floor Consideration;
• The ESG Debate Heats Up: State AGs Investigating Asset Manager Involvement in ESG Initiatives and Related Proxy Voting; 
• ESG Investing and Proxy Voting: DOL’s New Final Rule;
• SEC Adopts Final Rule Requiring Additional Proxy Voting Disclosures;
• Déjà Vu All Over Again: SEC Reverses 2020 Proxy Rules Changes and Proposes Shareholder Proposal Rule Changes;
• SEC Takes First Step Toward Standardized ESG Disclosures for Funds and Investment Advisers; 
• SEC Issues Climate-Related Risk Disclosure Rule Proposal; 
• 2023 ESG State Legislation Wrap Up; and
• Biden Administration ESG Activity Accelerates.