The Proxy Advisor Duopoly’s Anticompetitive Conduct

2025-06-25

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Summary

This congressional hearing focused on the alleged anti-competitive conduct of the proxy advisor duopoly, Institutional Shareholder Services (ISS) and Glass Lewis. Republican members and witnesses expressed significant concerns about their market dominance, foreign ownership, and the perceived influence of their recommendations on American corporate governance, particularly regarding environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI) policies[ 00:32:08-00:34:45 ]

[ 00:34:47-00:36:34 ] . Democratic members, conversely, largely dismissed these allegations as politically motivated attacks lacking evidence of actual antitrust violations, asserting that proxy advisors merely respond to market demand for independent analysis and shareholder preferences.

Themes

Market Dominance and Anti-Competitive Concerns

ISS and Glass Lewis collectively control over 90% of the proxy advisor market, with some estimates putting it at 97%[ 00:32:37 ]

[ 01:10:18 ] . Critics allege that this duopoly acts as a "de facto regulator" of American companies, dictating outcomes of board elections and major business proposals, and stifling competition[ 00:32:48-00:33:00 ] [ 00:33:33 ] . Witnesses pointed to their control over voting platforms as a barrier to entry for smaller competitors, preventing rival advisors from accessing essential systems and effectively pre-loading ballots with their own recommendations. Conversely, others argue that their market share is a reflection of the value and independent expertise they provide to institutional investors and that investors are not obligated to follow their advice.

Conflicts of Interest

A significant concern raised was the alleged conflict of interest arising from ISS and Glass Lewis offering both proxy advisory services and consulting services to the same companies[ 00:36:44-00:37:26 ]

. Critics characterized this practice as a "mafia-style shakedown," where companies feel compelled to purchase consulting services to avoid negative recommendations in future proxy seasons[ 00:36:56 ] . This dual role is seen as undermining the objectivity of their recommendations and creating a "pay-to-play" system[ 00:37:19 ] . Proposed legislation, such as the "Stopping Proxy Advisors Racketeering Act," aims to prohibit proxy advisory firms from offering these consulting services.

Influence of ESG and DEI Policies

Many Republican members and witnesses expressed concern that proxy advisors are using their influence to push "politically motivated agendas" like ESG and DEI, which they believe harm American businesses through costly targets, reduced energy production, and lower returns for investors[ 00:32:55-00:33:00 ]

[ 00:35:06-00:36:34 ] [ 01:11:35 ] . They argue this amounts to "policymaking by proxy" and prioritizes politics over profits[ 00:36:22 ] . Democrats countered that these are legitimate shareholder concerns, reflecting a market demand for responsible investing that can lead to better financial performance and address risks like climate change[ 00:47:01-00:47:15 ] .

Foreign Ownership and Accountability

The foreign ownership of ISS (German) and Glass Lewis (Canadian) was highlighted as a point of concern regarding the strategic direction of American companies[ 00:34:15 ]

. Critics questioned whether foreign entities should exert such significant control over U.S. corporate decisions without being accountable to American voters or laws[ 00:34:11 ] . Concerns were also raised about the lack of a direct fiduciary duty of proxy advisors to the ultimate American investors, such as retirees and savers[ 00:33:26 ] [ 01:31:50 ] .

Tone of the Meeting

The meeting had a highly polarized and contentious tone, largely divided along party lines. Republicans expressed strong criticism and alarm, using charged language like "deeply concerning threat," "mafia-style shakedown," and "racketeering" to describe the proxy advisor duopoly[ 00:32:32 ]

[ 01:09:26 ] . They framed the issue as an abuse of market power and anti-competitive conduct that jeopardizes American enterprise[ 00:32:48 ] . In contrast, Democrats were defensive of the proxy advisors, dismissing the allegations as "baseless," "flawed," and "politically motivated attacks" or "culture war" campaigns intended to undermine shareholder rights. There was also a notable commercial undercurrent, with one witness promoting his company as a competitive alternative to the dominant firms[ 01:17:57-01:18:38 ] .