Senate Banking Committee Chairman Tim Scott, along with Subcommittee on Securities, Insurance, and Investment Chairman Mike Rounds and Protecting Main Street Investors Working Group Chairman Bill Hagerty, have expressed concerns regarding the influence of proxy advisors on U.S. public companies’ corporate governance. The senators addressed a letter to Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co., highlighting issues such as lack of transparency and potential conflicts of interest.
The letter questions the basis for recommendations made by these firms, especially in relation to economic analysis. “Public admissions from your leadership – in congressional testimony and in appearance before national media – reveal that your firms routinely issue vote recommendations, particularly on environmental, social, and political proposals, without any underlying economic analysis,” stated the senators.
Concerns were also raised about conflicts of interest due to ISS’s dual role as both a proxy advisor and governance consultant. The letter notes that this situation could lead companies to purchase consulting services from ISS to secure favorable voting recommendations. “ISS’s dual role as both a proxy advisor and a governance consultant presents inherent conflicts of interest,” it reads.
Foreign ownership was another point of contention. The senators pointed out that ISS is 80% owned by Deutsche Börse, which has shown commitment to ESG principles. Similarly, Glass Lewis is owned by Peloton Capital Management with an emphasis on ESG factors in investment decisions. “These public declarations by your parent companies reveal a foundational orientation toward ESG advocacy,” the letter states.
The senators also criticized the lack of transparency in voting recommendations from these firms. They noted partisan patterns in ISS’s recommendation history while highlighting Glass Lewis’s refusal to disclose its voting recommendations publicly.
Additionally, the letter addresses concerns over board diversity mandates applied by ISS and Glass Lewis. It claims these mandates often ignore industry-specific talent pipelines or company-specific circumstances: “For years, ISS and Glass Lewis have applied one-size-fits-all board diversity mandates.”
To access the full content of the letter sent by the senators, interested parties are encouraged to click on the provided link.
