Musk, Dimon and now the White House? Shareholder advisory services under fire
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The White House is reportedly eyeing new limits on shareholder advisory services — and investors have recently tuned the services out on major votes.
Why it matters: Pressure is mounting on firms like Institutional Shareholder Services (ISS) and Glass Lewis, which have long played influential roles in stockholder votes on issues like executive pay, board seats and corporate resolutions.
State of play: The White House is weighing a bid "to curb the influence of proxy advisers and index-fund managers," WSJ reported Wednesday.
- It could include an executive order banning shareholder recommendations, according to the report.
- WSJ separately reported that the FTC is investigating whether ISS and Glass Lewis violated antitrust laws.
A White House official told Axios that discussion about potential executive orders is speculation.
Between the lines: A long running complaint from conservatives and business executives has been that proxy advisors have political agendas — for instance prioritizing climate and social issues — and are too prone to recommend against board positions, Reuters noted.
High-profile business leaders have ramped up criticism in recent months.
- "I mean those guys are corporate terrorists," Tesla CEO Elon Musk said on an earnings call in October, adding that they "have no freaking clue" and that their recommendations "would have been extremely destructive to the future of the company."
- JPMorgan Chase CEO Jamie Dimon told Semafor at a BlackRock summit in March that ISS and Glass Lewis are "incompetent" and are "driving companies out of the public market."
The other side: Advocates say shareholder advisory services play a crucial third-party role in aiding stockholders and note that their recommendations are not mandates.
- "ISS is proud of its history of providing high-quality, independent, and objective advice to the world's most sophisticated institutional investors," an ISS spokesman said in a statement, adding that the company is "committed to fulfilling its fiduciary duties to clients and operating in a transparent and ethical manner."
- "While we respect the Administration's Executive Order prerogative, Glass Lewis believes this is more effectively handled through the constructive engagement of a regulatory process," a Glass Lewis spokesperson said in a statement.
The intrigue: Shareholders have ignored recommendations by ISS and Glass Lewis on multiple major votes recently.
- Both recommended against Musk's nearly $1 trillion pay package, but Tesla shareholders overwhelmingly supported it last week.
- Both recommended against Larry Fink's compensation at BlackRock in 2024, but shareholders endorsed it.
- ISS endorsed activist investor Nelson Peltz's effort to get onto the Disney board in 2024, but shareholders voted against him.
Reality check: Third-party watchdogs, by their very nature, are susceptible to criticism because they don't necessarily reflexively follow the recommendation of corporate boards.
