What's Happening?
President Donald Trump has issued an executive order directing the Securities and Exchange Commission (SEC) to review regulations concerning proxy advisory firms. This move is part of a broader effort
to limit the influence of these firms on public companies, particularly in relation to diversity, equity, and inclusion, as well as environmental, social, and governance (ESG) policies. The order specifically mentions Institutional Shareholder Services Inc. and Glass Lewis & Co., which provide guidance to institutional investors on shareholder voting. The administration argues that these firms have supported proposals requiring companies to conduct racial equity audits and reduce greenhouse gas emissions, raising concerns about conflicts of interest and the quality of their recommendations. The order also involves the Federal Trade Commission (FTC) in reviewing potential antitrust violations by these firms.
Why It's Important?
This executive order reflects President Trump's ongoing efforts to reshape corporate governance by challenging ESG initiatives, which have been a point of contention among conservatives. By targeting proxy advisory firms, the administration aims to increase oversight and promote accountability within the industry. This move could significantly impact how institutional investors make decisions, potentially altering the landscape of corporate governance in the U.S. Companies may face less pressure to adopt ESG-related measures, which could affect their strategies on diversity and environmental issues. The order also signals a potential shift in regulatory focus, with implications for how businesses navigate shareholder relations and compliance with federal guidelines.
What's Next?
The SEC, under the direction of its chairman, will review existing regulations and consider revising or rescinding rules that conflict with the executive order's objectives. The FTC, in consultation with the U.S. attorney general, will assess ongoing state antitrust investigations into proxy advisers. These reviews could lead to significant regulatory changes affecting the proxy advisory industry. Stakeholders, including institutional investors and corporate boards, will likely monitor these developments closely, as any changes could influence shareholder engagement and corporate policy decisions. The outcome of these reviews may also prompt further legislative or regulatory actions from Congress or other federal agencies.
