The Trump Administration last week issued an executive order with the goal of eventually curtailing the influence of Institutional Shareholder Services Inc. (“ISS”) and Glass, Lewis & Co. LLC (“Glass Lewis”). Among other things, the executive order seeks to rein in the proxy advisors’ support for diversity, equity and inclusion (“DEI”) and environmental, social and governance (“ESG”) initiatives, which have become increasingly misaligned with the priorities of mainstream institutional investors in recent years. The order also seeks to require proxy advisors to provide much‑needed enhanced disclosures on their recommendations, methodology and conflicts of interest and hold them accountable for material misstatements or omissions under federal securities antifraud rules.
In the near-term, the executive order may decrease proxy advisor support for DEI- and ESG-related matters and empower the SEC to limit the use of shareholder proposals to advance such causes. With the influence of proxy advisors potentially waning as a result of SEC and other administrative actions, companies facing activist pressure may also be less inclined to settle with activists. Over the medium- and longer-term, the executive order’s focus on the proxy advisors’ role in helping coordinate voting decisions among investors may accelerate the ongoing shift away from one-size-fits-all “benchmark” proxy voting policies to policies tailored for individual institutional clients. The expansion of custom voting policies could be highly consequential for investor voting practices, shareholder engagement, and the tactics and outcomes of future proxy contests.
Overview of the Executive Order
Pursuant to the executive order, the SEC has been given broad authority to “review all rules, regulations, guidance, bulletins, and memoranda relating to proxy advisors” and to “consider revising or rescinding all rules, regulations, guidance, bulletins, and memoranda relating to shareholder proposals” that are inconsistent with the purpose of the executive order.
The SEC has also been tasked with regulating proxy voting advice, notwithstanding the decision by the U.S. Court of Appeals for the District of Columbia in July which invalidated earlier SEC efforts to regulate proxy voting advice under Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). Specifically, the SEC has been instructed to (i) enforce federal securities antifraud rules with respect to proxy voting recommendations, (ii) assess whether proxy advisors should be required to register as investment advisers under the Investment Advisers Act of 1940, (iii) consider requiring proxy advisors to provide increased disclosures on their recommendations, methodology and conflicts of interest, (iv) analyze whether proxy advisors help investment advisers coordinate voting decisions and form a “group” under Section 13 of the Exchange Act, and (v) assess whether registered investment advisers may be breaching their fiduciary duties when engaging proxy advisors to advise on DEI and ESG matters.
The executive order also instructs the Federal Trade Commission (FTC) to investigate antitrust violations by proxy advisors and the Secretary of Labor to strengthen fiduciary standards of retirement plans covered under the Employee Retirement Income Security Act of 1974. The FTC’s antitrust investigations are already underway and the Department of Labor earlier this year announced plans to eliminate rules that permit retirement plan fiduciaries to consider ESG factors when making investment and voting decisions.
Impact on the 2026 Proxy Season
The immediate impact of the executive order may be to further accelerate ISS and Glass Lewis’s ongoing retreat from blanket support of DEI and ESG matters. As discussed in our earlier alert, ISS has adopted a case-by-case approach to environmental and social shareholder proposals in its 2026 benchmark proxy voting policies. The 2026 policy is a reversal from prior years where ISS generally recommended in favor of such proposals. Earlier this year, Glass Lewis announced that clients would be able to opt out of its DEI-related voting recommendations. Glass Lewis has also reserved the right to further modify its 2026 benchmark voting policy on shareholder proposals in response to regulatory developments.
The executive order also empowers the SEC to limit the availability of Rule 14a-8 shareholder proposals, particularly with respect to DEI and ESG matters. Amendments to Rule 14a-8 are expected in the first half of 2026 and a continued decline in investor and proxy advisor support for environment and social proposals could provide the SEC with further justification to limit the use of Rule 14a-8 shareholder proposals and permanently scale back its role in adjudicating no-action requests.
It bears noting that “core” governance matters related to shareholder rights are less likely to be impacted by the executive order. These matters have not faced criticisms over political bias and investor support for governance-related proposals have remained steady in recent years.
As the influence of proxy advisors wanes under ongoing regulatory scrutiny and tightening regulations, the dynamics of proxy contests could also change in the coming months. Historically, ISS and Glass Lewis’s recommendations in favor of activists have counterbalanced the pro-management votes of index funds in proxy contests, and that has been a key factor for companies deciding whether to settle with an activist. Going forward, companies may see less value in proxy advisor recommendations as a gauge of shareholder support, which could result in fewer settlements and potentially fewer activist victories in proxy contests.
Impact Beyond the 2026 Proxy Season
Looking further ahead, the executive order may have lasting consequences for investor voting practices and could reshape shareholder engagement and the tactics and outcomes of future proxy contests. Specifically, the executive order calls on the SEC to assess whether proxy advisors serve as a vehicle for investment advisers to “coordinate and augment” their voting decisions. The order follows remarks by SEC Commissioner Mark Uyeda earlier this month where he questioned whether investment advisers who vote their shares solely based on the recommendations of proxy advisors may have formed a group under Section 13 of the Exchange Act and could be required to file a Schedule 13D even if they beneficially own less than 5% of a class of voting securities.
The executive order and Commissioner Uyeda’s remarks represent a coordinated regulatory effort at addressing the practice of institutional investors automatically voting in accordance with proxy advisor recommendations (also known as robo-voting). Institutional investors who rely on the same proxy advisor recommendations may face increased risk of becoming 13D filers, an outcome most institutional investors will likely look to avoid. Consequently, regulatory scrutiny of robo-voting could further hasten the ongoing shift toward customized proxy voting policies that are tailored to each institutional investor.
An expansion in customized proxy voting policies could make vote outcomes less predictable, particularly in proxy contests where institutional investors may be least likely to adhere to their historical voting patterns. More importantly, in future proxy contests, securing the support of ISS and Glass Lewis may decrease in importance relative to targeted engagement with a broader swath of institutional investors, who through their custom voting policies, will be driving vote outcomes. The nature of proxy contests could also evolve to become more data-driven, particularly as artificial intelligence plays a growing role in the creation of custom proxy voting policies. In short, the days when benchmark voting policies and the support of proxy advisors could serve as a reliable gauge of vote outcomes may be numbered. Winning future proxy contests may require companies to deploy new tools to track individual investor voting practices and deliver bespoke messaging to shareholders at scale.
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The Trump Administration’s executive order seeks to provide companies with much-needed transparency and accountability from proxy advisors. The order also seeks to provide companies with relief from shareholder proposals that have consumed significant corporate resources in recent years without delivering meaningful value to shareholders. However, the executive order may also bring about potentially transformative longer-term changes to shareholder voting practices through the increased use of customized voting policies, which could in turn reshape future shareholder engagement and proxy contest strategies.
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