The proxy advisory business isn’t exactly dinner table conversation, but a new executive order from President Trump has thrust this little-known industry into the spotlight. The order takes aim at what the administration calls “foreign-owned and politically motivated” firms that hold enormous sway over corporate America.
At the heart of the issue are two companies that most Americans have never heard of: Institutional Shareholder Services Inc. and Glass, Lewis & Co., LLC. Together, these proxy advisors control more than 90 percent of the market, according to a White House statement released with the executive order. Both are foreign-owned entities that provide recommendations to institutional investors on how to vote their shares in public companies.
What Can the President Actually Do?
Executive orders can’t create new laws out of thin air. That said, they can significantly influence how agencies like the Securities and Exchange Commission (SEC) interpret and implement existing regulations. Legal experts suggest Trump’s directive could substantially impact the proxy advisory landscape through SEC actions, even without congressional involvement.
The order specifically directs the SEC Chairman to review and potentially overhaul rules related to proxy advisors, particularly those involving diversity, equity, and inclusion (DEI) initiatives and environmental, social, and governance (ESG) priorities. It also targets the process for shareholder proxy proposals, which activist investors often use to push corporations on issues ranging from climate change to board diversity.
Why does this matter? Proxy advisors essentially function as powerful gatekeepers in corporate governance, influencing trillions of dollars in investment votes. Their recommendations can determine everything from executive compensation to whether companies pursue climate-friendly policies.
“These firms have accumulated extraordinary influence over American business with virtually no accountability,” said a senior administration official who requested anonymity to discuss the order’s rationale.
Industry Ripple Effects
The proxy advisory industry has faced criticism from both corporate America and conservative politicians who claim these firms push a progressive agenda that may not align with maximizing shareholder value. Defenders argue they provide crucial independent analysis that helps institutional investors fulfill their fiduciary duties.
The White House fact sheet accompanying the order specifically calls out the foreign ownership of these firms as problematic, suggesting they may not have American investors’ best interests at heart.
What remains unclear is exactly how far the SEC will go in response to the presidential directive. The agency operates as an independent regulatory body, though its leadership is presidential-appointed. Current SEC rules already require proxy advisors to disclose conflicts of interest and share their recommendations with companies before investors see them—requirements that came after years of corporate lobbying.
The executive order represents another front in the ongoing battle over ESG investing and corporate social responsibility. For corporate governance experts, the move signals potential regulatory whiplash as administrations change.
As companies prepare for the next proxy season, they’ll be watching closely to see how quickly—and how dramatically—the regulatory landscape might shift.
