White House says new directive curbs political agendas in shareholder voting advice, such as ESG and diversity
President Trump has signed an executive order directing federal regulators to increase scrutiny of proxy advisory firms, arguing that their growing influence over shareholder voting has shifted away from investor returns and toward political priorities.
The order says that a small number of firms exert outsized control over how institutional investors vote on corporate matters, shaping decisions that affect retirement savings, pensions and other long-term investments.
According to the White House, two foreign-owned firms (Institutional Shareholder Services Inc. and Glass, Lewis & Co., LLC) dominate the proxy advisory market, controlling more than 90% of the industry. The order states that these two firms’ recommendations are widely relied upon by asset managers, pension funds and other institutions when voting on issues such as board elections, executive compensation and shareholder proposals.
The administration argues that this influence has increasingly been used to promote non-financial objectives.
The order states that proxy advisors “regularly use their substantial power to advance and prioritize radical politically-motivated agendas like ‘diversity, equity, and inclusion’ and ‘environmental, social, and governance’ even though investor returns should be the only priority.”
It further claims that these firms have backed shareholder proposals calling for racial equity audits, aggressive emissions reductions and voting frameworks tied to board diversity metrics, raising concerns that political considerations are being injected into corporate governance decisions.
To address those concerns, the executive order instructs the Securities and Exchange Commission to conduct a broad review of existing rules, guidance and enforcement practices related to proxy advisory firms. The SEC is directed to consider whether current policies should be revised or withdrawn, particularly where they intersect with politically sensitive areas.
The commission is also told to evaluate whether proxy advisors should be required to register as investment advisers and whether their voting recommendations are subject to existing anti-fraud provisions. In addition, regulators are asked to assess whether proxy advisory practices result in coordinated voting behavior that could raise issues under federal securities laws.
The order extends beyond the SEC to the Federal Trade Commission, working with the Justice Department, which is instructed to review state level antitrust investigations involving proxy advisors and determine whether their conduct constitutes unfair or deceptive practices that harm investors.
The Department of Labor is separately tasked with reviewing guidance under the Employee Retirement Income Security Act to determine whether proxy advisory services used by retirement plans align with fiduciary duties owed to plan participants. The agency is directed to consider steps to strengthen standards and improve transparency around proxy voting in retirement accounts.
Administration officials say the initiative is intended to refocus shareholder voting advice on financial performance, promote accountability in the proxy advisory industry and protect American investors from what the White House describes as politically driven decision-making.
