Florida Attorney General investigates ISS and Glass Lewis over proxy advisory conflicts

The U.S. House Committee on Financial Services convened on May 1, 2025, to discuss the influence of proxy advisory firms, particularly Institutional Shareholder Services (ISS) and Glass Lewis, on the financial markets. A significant focus of the meeting was the ongoing investigation by the Florida Attorney General into these firms and their impact on local businesses.

During the session, Mr. Crane, a key witness, expressed concerns about the potential consequences for the markets if ISS were to win its litigation against the National Association of Manufacturers (NAM). He warned that such a victory could leave proxy advisory firms unregulated, exacerbating existing issues like conflicts of interest and errors in their recommendations. Crane emphasized that this lack of oversight would be detrimental not only to public companies but also to investors who rely on accurate guidance.

The discussion also highlighted the actions of the Securities and Exchange Commission (SEC) under Chairman Gary Gensler, which have been criticized for rolling back previous efforts to regulate proxy firms. Crane noted that the SEC's withdrawal from asserting its authority in this area could hinder future regulatory actions, regardless of the administration in power.

Conflicts of interest within proxy advisory firms were a central theme. Crane pointed out that ISS's consulting services often coincide with negative voting recommendations, suggesting a business model that pressures companies to hire ISS to avoid unfavorable votes. Similarly, Glass Lewis has introduced a stewardship service that advises activist investors, raising questions about the impartiality of their voting recommendations.

The committee members expressed appreciation for the ongoing investigation by the Florida Attorney General, viewing it as a necessary step toward greater transparency and accountability in the proxy advisory industry. The meeting underscored the critical need for legislative measures to address the perceived "shenanigans" within the industry, as highlighted by various committee members.

In conclusion, the discussions at the meeting revealed significant concerns regarding the unchecked power of proxy advisory firms and their influence on shareholder decisions, emphasizing the need for regulatory oversight to protect investors and ensure fair market practices.