On December 11, President Trump signed an executive order directing multiple federal agencies, including the Securities and Exchange Commission, Department of Labor, Federal Trade Commission, and Department of Justice, to increase oversight of the proxy advisory industry. The order focuses on conflicts of interest, transparency, market concentration, and accountability, with a particular spotlight on two major proxy advisors. The concerns outlined affect both proxy advisors and investment managers.
The executive order signals a major shake-up coming for the proxy advisory industry and proxy voting. For investment managers currently relying on one of these major proxy advisors under scrutiny, the order may increase regulatory and reputational risk.
Concerns about Proxy Advisors
The order highlights the following key concerns about two major proxy advisors:
- Failure to adequately disclose conflicts of interest
- Lack of transparency in voting methodologies and recommendations
- Exposure of fiduciaries to liability for issuing recommendations not based on pecuniary factors
- Anti-competitive practices that have contributed to market concentration
Accordingly, the executive order directs the following federal agencies to act:
- The Securities and Exchange Commission
The executive order directs the SEC to “review all rules, regulations, guidance, bulletins, and memoranda relating to proxy advisors” and “consider revising or rescinding those rules, regulations, guidance, bulletins, and memoranda that are inconsistent with the purpose of this order…” The stated purpose of the EO is to restore public confidence in proxy advisors through increasing accountability, transparency, and competition. In particular, the order raises concerns about transparency in methodologies and vote recommendations, as well as the potentially fraudulent nature of errors in proxy reports.
- The Federal Trade Commission
The Federal Trade Commission is tasked with examining anticompetitive practices within the proxy advisory duopoly, including multiple state investigations that have already been launched. The FTC is also mandated to investigate deceptive practices, such as failure to properly disclose conflicts of interest.
- The Secretary of Labor
The Secretary of Labor is tasked with evaluating and revising all regulations and guidance related to the fiduciary status of proxy advisors who advise plans covered under ERISA. In addition, the Secretary must assess whether proxy advisor practices are undermining the pecuniary value of ERISA plan assets and whether investment managers overseeing ERISA plans need to take steps to enhance transparency around their use of proxy advisors.
Concerns about Investment Managers
Beyond increased oversight of proxy advisors, the executive order reinforces that investment managers, particularly those overseeing ERISA-governed plans, retain responsibility for proxy voting decisions even when relying on third-party proxy advisors. Therefore, investment managers must continue to vote shares in a fiduciary manner.
Specifically, the executive order directs federal agencies to:
- Assess whether RIAs using proxy advisors to advise on non-pecuniary matters are violating their fiduciary duties
- Assess whether RIAs relying on proxy advisors with opaque methodologies or insufficient disclosures of conflicts of interest are violating their fiduciary duties
- Assess whether investment advisers are forming a group under Sections 13D and 13G when utilizing a proxy advisor
- Ensure that investment managers overseeing ERISA plans increase transparency about their use of proxy advisors
Implications for Proxy Advisors and Investment Managers
While it remains to be seen how federal agencies will ultimately address these concerns, several potential outcomes appear likely:
- Proxy advisors may be required to register as investment advisers with the SEC
- Proxy advisors may be deemed fiduciaries providing investment advice when providing advice to clients managing ERISA plans
- Proxy advisors may be required to increase transparency around their methodologies and conflicts of interest
- Investment managers may face fiduciary risk if they rely on proxy recommendations based on non-pecuniary factors or from proxy advisors that do not adequately disclose methodologies and conflicts
This Is Not New
This executive order is not a surprise. These issues have been discussed extensively in recent congressional hearings, including an April 2025 House Financial Services Committee hearing titled “Exposing the Proxy Advisory Cartel: How ISS & Glass Lewis Influence Markets,” a June 2025 House Judiciary Committee hearing titled “The Proxy Advisor Duopoly’s Anticompetitive Conduct,” and a September 2025 House Financial Services Committee hearing titled “Proxy Power and Proposal Abuse: Reforming Rule 14a-8 to Protect Shareholder Value.”
In addition, state investigations have been launched by Florida, Texas, and Missouri into two major proxy advisory firms to assess whether non-pecuniary factors are influencing recommendations, antitrust concerns are present, or fraudulent practices are occurring.
How to Shelter from the Storm
As the title of this piece suggests, a storm is coming that could reshape the proxy voting industry. Investment managers can seek shelter from the storm by working with proxy advisors that are:
- Free from conflicts of interest created by offering consulting services to issuers
- Free from bias associated with benchmark voting policies
- Focused exclusively on producing recommendations that protect and enhance investor wealth
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