Topline
The Federal Trade Commission has launched an investigation into whether proxy advisory firms violated antitrust laws, just as the Trump administration considers an executive order that would reduce their influence on shareholder voting, according to the Wall Street Journal–heaping further scrutiny of the groups that count among its critics prominent business figures like Elon Musk.
Key Facts
The FTC’s investigation is focused on how proxy advisers directed their clients on controversial issues related to environmental and social, and governance (ESG) shareholder proposals, WSJ reports.
The Trump administration has also drafted a possible executive order to either completely ban shareholder recommendations or ban recommendations on companies who use proxy advisers.
Proxy advisers like Institutional Shareholder Services and Glass Lewis perform research and make recommendations on behalf of investors when proposals come up for a shareholder vote, even though they do not typically own company shares.
Some major investors say the advisers are key to making informed decisions, but Tesla CEO Elon Musk has openly criticized the influence of proxy advisers, calling them “corporate terrorists,” after both ISS and Glass Lewis recommended shareholders reject his $1 trillion pay package.
Jamie Dimon, the CEO of JPMorgan also called for an end to proxy advisers, saying they were “incompetent.”
What Is A Proxy Adviser?
Proxy advisers are firms that provide research, analysis and recommendations to shareholders, assisting them in making informed voting decisions. Although owning no shares, these companies are able to provide voting recommendations to institutional investors at shareholder meetings. The first proxy advisory firm was Institutional Shareholder Services, which was created in 1985 as a response to federal regulations that required large institutional investors like index funds to vote on corporate matters. As a result of the increasing complexity of financial markets and the large number of companies institutional investors held shares in, it became difficult for these investors to perform research on all companies in their portfolio, so they instead deferred to proxy advisers, who were paid for their services performing due diligence on companies.
