What's Happening?
President Trump has issued an executive order directing the Securities and Exchange Commission to review the practices of major proxy advisory firms, Institutional Shareholder Services (ISS) and Glass
Lewis. These firms provide recommendations to shareholders on corporate voting matters, including diversity, equity, inclusion (DEI), and environmental, social, governance (ESG) policies. The order is seen as a response to concerns from corporate leaders like Elon Musk, who have criticized the influence of these firms on shareholder decisions. The review aims to scrutinize the firms' methodologies and their impact on corporate governance.
Why It's Important?
The executive order could significantly alter the landscape of corporate governance in the U.S. by potentially reducing the influence of proxy advisory firms on shareholder decisions. This move aligns with broader efforts by the Trump administration to shift away from DEI and ESG policies, which have been criticized by some as promoting 'woke capitalism.' The review could lead to changes in how institutional investors make decisions, impacting corporate strategies and potentially leading to a shift in power dynamics between shareholders and corporate boards.
What's Next?
The SEC's review of ISS and Glass Lewis will be closely monitored by corporate leaders, investors, and policymakers. The outcome could lead to regulatory changes affecting how proxy advisory firms operate. Additionally, the Federal Trade Commission has been directed to investigate potential antitrust violations by these firms. The results of these investigations could have long-term implications for corporate governance practices and the role of proxy advisory firms in the U.S. market.
