American Banker
Blaine Luetkemeyer, William Lacy Clay Jr.
Two large proxy advisory firms exert extraordinary and pernicious influence on public companies in the U.S. Congress must act to protect American businesses and the investors whose future relies on them, write former Congressmen Blaine Luetkemeyer and William Lacy Clay Jr.
Most Americans have never heard of Institutional Shareholder Services (ISS) or Glass Lewis, yet these obscure entities wield enormous power over their retirement savings and the future of U.S. capital markets. If you have a 401(k), a pension, or own a mutual fund, chances are your investments are being influenced by these two firms that you probably know nothing about, operating with practices that you never approved. For decades, we fought in Congress to protect Main Street investors and ensure our capital markets remain the envy of the world. But these proxy advisory firms represent a dangerous blind spot — unaccountable power brokers controlling trillions of dollars in investment decisions while operating in the shadows with virtually no regulatory oversight.
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The regulatory vacuum surrounding proxy advisors is astounding. While public companies must comply with extensive SEC disclosure requirements and investment advisors face strict fiduciary standards, proxy advisory firms face almost no oversight. They make recommendations that can make or break a company’s strategic initiatives and determine whether boards get elected — all without having to demonstrate the accuracy of their research or answer for their mistakes. We understand that countless CEOs have discovered factual inaccuracies in proxy reports only after the damage was done. When proxy advisors get it wrong, there are no consequences.
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It’s long past time for Congress to restore accountability and put investors first. The current system serves proxy advisory firms and politicized investors — not the millions of Americans whose financial futures depend on well-governed, profitable companies.
