In a significant move, President Donald Trump has called for a review of two leading proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis. This decision is seen as a major victory for Elon Musk, who has been critical of the influence these firms have over corporate decisions.
What Happened
Trump issued an executive order instructing the Securities and Exchange Commission to examine the practices of ISS and Glass Lewis. These firms provide guidance to shareholders on voting matters and have faced criticism from Musk and other corporate leaders for their sway over corporate decisions. The executive order specifically targets the firms’ application of diversity, equity, and inclusion (DEI) and environmental, social, and governance policies (ESG).
Background
Musk has previously expressed dissatisfaction with ISS and Glass Lewis, as they have advised investors to vote against corporate decisions at Tesla, including proposals for Musk’s remuneration package. The order is perceived as a victory for Musk and others who have raised concerns about the influence of proxy advisory firms.
The Role of ISS and Glass Lewis
ISS and Glass Lewis counsel major institutional investors like BlackRock, pension funds, and other asset managers. Their influence has expanded to such an extent that they have attracted scrutiny from various states and constituencies. The firms are owned by companies in Germany and Canada, respectively.
Antitrust Probe
The executive order also instructs the Federal Trade Commission to probe whether ISS and Glass Lewis are breaching antitrust laws. This follows a lawsuit by Florida’s attorney general against the firms for alleged violation of state antitrust laws.
Why It Matters
Proxy advisory firms play a crucial role in guiding institutional investors on voting matters. However, their influence over corporate decisions has been a point of contention for many corporate leaders, including Musk. The review ordered by Trump could potentially lead to changes in the way these firms operate, which could have far-reaching implications for corporate governance.
Potential Implications
The outcome of this review could potentially alter the balance of power between corporate leaders and shareholders. This is particularly significant for Tesla, where ISS and Glass Lewis have previously recommended against corporate decisions. The review may lead to changes in the way proxy advisory firms operate, which could have a major impact on the corporate world.
Conclusion
The decision by Trump to review the practices of ISS and Glass Lewis is a significant development in the world of corporate governance. The outcome of this review will be closely watched by corporate leaders, investors, and regulators, as it has the potential to reshape the balance of power between corporate leaders and shareholders.