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Trump Orders Review of Two Proxy Advisory Firms
In a move that has significant implications for corporate governance and proxy advisory firms, President Donald Trump has ordered a review of two major companies that advise shareholders on votes. These firms have previously drawn criticism from Tesla CEO Elon Musk and others.
Background
Proxy advisory firms play a crucial role in shaping the voting behavior of institutional investors at public company meetings. They analyze a company's financial performance, governance practices, and other factors to provide recommendations on which candidates to support for the board of directors or executive compensation.
The two firms under review are:
- Institutional Shareholder Services (ISS): ISS is one of the largest and most influential proxy advisory firms in the world. It advises investors on over 80% of S&P 500 companies.
- Glass, Lewis & Co.: Glass, Lewis is another prominent proxy advisory firm that provides research reports and voting recommendations to institutional investors.
Controversies Surrounding ISS and Glass, Lewis
Tesla CEO Elon Musk has been a vocal critic of both ISS and Glass, Lewis. In 2018, Musk accused ISS of being biased against Tesla's executives and recommended that investors vote against their re-election. He also criticized Glass, Lewis for its negative report on Tesla's governance practices.
Other companies have also raised concerns about the influence of proxy advisory firms on corporate governance. Some argue that these firms can be too focused on short-term financial performance and neglect long-term strategic issues.
Trump's Order
In an executive order issued on Thursday, President Trump directed the Securities and Exchange Commission (SEC) to conduct a review of ISS and Glass, Lewis. The SEC will examine the firms' methodologies, conflicts of interest, and potential biases that may influence their recommendations.
The review is seen as a significant step by Trump, who has long been critical of proxy advisory firms and their perceived lack of transparency. The order also reflects his administration's broader efforts to increase corporate governance disclosure and oversight.
Implications
The implications of this development are far-reaching and could have significant consequences for the proxy advisory industry. If the review finds that ISS and Glass, Lewis are not complying with regulatory requirements or exhibiting excessive biases, they may face increased scrutiny and potential changes to their business practices.
Companies may also take notice of the review and adjust their own governance practices in response. This could lead to a more nuanced approach to corporate governance, one that takes into account both short-term financial performance and long-term strategic considerations.
What's Next
The review of ISS and Glass, Lewis is likely to be a complex and time-consuming process. The SEC will need to gather information from the firms, as well as other stakeholders, before issuing its findings.
In the meantime, investors and corporate governance experts will be watching closely for any developments that may impact the proxy advisory industry. As one expert noted, "This review has the potential to reshape the way companies are governed and how proxy advisors operate."
Conclusion
The order by President Trump to review ISS and Glass, Lewis is a significant development in the world of corporate governance. As the review unfolds, it will be interesting to see how these firms respond and whether any changes emerge from this process.
One thing is certain: the fate of proxy advisory firms hangs in the balance, and investors, companies, and governance experts alike will be watching closely to see what's next.
Timeline
- Thursday: President Trump issues executive order directing the SEC to review ISS and Glass, Lewis.
- SEC Review: The Securities and Exchange Commission begins its review of the two firms, examining their methodologies, conflicts of interest, and potential biases.
- Coming Weeks/Months: The SEC is expected to issue its findings, which may include recommendations for changes to the firms' business practices.
Key Players
- President Donald Trump: Ordered the review of ISS and Glass, Lewis.
- SEC Chairman Jay Clayton: Will oversee the review process and report back to the President.
- Elon Musk: Tesla CEO who has been critical of ISS and Glass, Lewis in the past.