WASHINGTON (Business Emerge/Morning USA Team): A recent executive order issued by U.S. President Donald Trump has directed federal regulators to expand scrutiny of proxy advisers, firms that guide institutional investors on corporate voting decisions, marking a significant regulatory move affecting shareholder rights.
The order instructs the U.S. Securities and Exchange Commission and other federal bodies to examine the role and oversight of proxy advisory firms, including Institutional Shareholder Services and Glass Lewis. These firms provide voting recommendations to mutual funds, pension funds, and asset managers that collectively hold large stakes in major publicly listed companies.
Proxy advisers influence decisions on board appointments, executive compensation plans, and shareholder resolutions. Their clients include institutions with holdings across the Fortune 500 and other large market indexes. The administration stated that the firms’ influence over voting outcomes warrants closer regulatory supervision.
The directive asserts that proxy advisers hold concentrated market power and that their recommendations can affect corporate governance outcomes across multiple sectors. It also calls on regulators to review existing rules related to shareholder proposals, including whether some regulations should be revised or withdrawn.
Institutional investors rely on proxy advisers to assess thousands of votes each year. Data from market disclosures show that large asset managers manage portfolios containing shares in several thousand companies globally, making third party voting guidance a key operational input.
The order comes amid ongoing regulatory actions that have already increased reporting obligations for large fund managers when engaging with company leadership. Previous measures have also adjusted how shareholder proposals appear on annual meeting ballots and how voting disclosures are filed.
Institutional Shareholder Services became majority owned by Germany’s Deutsche Boerse in 2020. Glass Lewis is controlled by Canadian private equity firm Peloton Capital and its leadership team. Both firms operate internationally and serve clients across North America, Europe, and Asia.
The administration has stated that the order is intended to refocus investment decision making on financial performance and return objectives. It has also indicated that oversight efforts will examine how proxy advisers develop methodologies and how those methodologies are communicated to clients.
Legal practitioners representing investor groups have noted that shareholder proposals are one of the primary mechanisms through which investors communicate expectations on governance matters. Any regulatory changes affecting proposal eligibility or voting processes could alter how investors engage with corporate boards.
Business groups have welcomed the order, saying it addresses what they describe as an imbalance in influence between corporate management and third party advisers. They have argued that greater oversight may reduce reliance on proxy firms and encourage investors to conduct independent analysis.
The order follows several years of debate in U.S. financial markets over the scope of investor engagement and the responsibilities of asset managers. During this period, proxy advisers have adjusted internal policies, including reducing support for certain types of shareholder resolutions, in response to regulatory and market pressures.
Regulators are now expected to review existing frameworks governing proxy advisory services and shareholder proposals. Any rule changes would require formal procedures, including public consultation and implementation timelines set by the relevant agencies.
The review process may also involve coordination with other regulatory bodies overseeing investment advisers and market infrastructure. Outcomes could include updated disclosure standards, revised compliance requirements, or changes to how proxy advice is distributed to investors.
Market participants are awaiting further guidance from regulators on how the order will be implemented. Until formal rules are proposed or amended, proxy advisers and institutional investors will continue operating under existing regulations.
