Proxy Advisors: Easing a Strained Relationship

Boards have an uneasy relationship with shareholders – and Proxy Advisors (PAs), who represent many smaller shareholders at AGMs, have ratcheted up the tension.
This relationship could be improved by introducing greater transparency, engagement, customisation and machine learning.

PAs help smaller shareholders manage their numerous statutory voting responsibilities. By crunching numbers and recommending how to vote on proposed director appointments, executive pay packages, mergers and more, they have become an indispensable for smaller investors. Their ‘one-size fits all’ solutions have created economies of scale, giving PAs immense voting power.

The two big global players, Glass Lewis and ISS, have an estimated 90% of the US proxy advisory market and a sizeable chunk of the industry globally. No-one is obliged to follow their voting recommendations. But having paid for their advice and in the absence of a clear alternative viewpoint, most funds do.

One study suggests that “a negative recommendation from ISS is associated with a 17-percentage point reduction in support for equity-plan proposals, 18 points for uncontested director elections, and 27 points for ‘Say on Pay.’” That can swing a close vote, and is an effective veto if 75% support is needed for the Board to claim a mandate.

PAs hit headlines in 2025, when Glass Lewis and ISS lobbied against Elon Musk’s trillion dollar pay proposal, having previously rejected his $46bn proposed pay package the previous year. But a Council of Institutional Investors paper claims PAs impact is marginal.

The tide is turning. On 11 December 2025, US President Donald Trump issued an Executive Order “Protecting American Investors From Foreign-Owned and politically motivated Proxy Advisers”. (Glass Lewis is owned by Canadian private equity group Peloton Capital Management; ISS is owned by Deutsche Bourse). PAs say 70% of their clients don’t want more regulation, and further regulation would only serve to further entrench the duopoly by raising barriers to competition.

Building a Better Relationship

There are four key areas where Boards can help companies, investors and proxies work better together.

1. Transparency: With an estimated 40,000 public company director appointments in the U.S. alone, how do PAs assess skills and expertise without even interviewing the candidate? And what, for example, specifically constitutes an ‘egregious’ or ‘excessive’ pay package?
   
   This opacity fuels fears about potential conflicts of interest. If a PA’s consulting arm sells a corporate governance package, could this be linked to a voting recommendation on CEO pay? There are shades of the 2008 financial crisis and the role played by credit rating agencies.
2. Engagement: The absence of dialogue makes it hard for Boards to talk through any differences or misunderstandings. In one case, a pay incentive proposal by was voted down because the Board was denied the opportunity to respond to PA objections. Jamie Dimon, JPMorgan Chase’s CEO, reportedly claimed that PA data is often wrong, and PAs are under no legal obligation to correct them. PAs counter that ‘errors’ are insignificant and are often just differences of opinion.
   
   However, executives argue that it’s not the error itself - we all make them - but the inability to correct that infuriates them. Another Board member recalls how a PA rejected a slate of director appointments because it mistakenly thought two female candidates with unisex names were male, thereby breaching diversity standards. The Board was unable to contact the Proxy to put it right. “We just want to be able to talk through differences,” said a Board representative.
3. Customisation: Glass Lewis says it will now focus on tailored advice to individual clients. Companies meanwhile, can circumvent PA’s gatekeeping by developing strategic dialogue with smaller shareholders, including retail funds.
   
   “Companies that invest in thoughtful, credible engagement will be better positioned for the proxy season, instead of solely relying on … one-size-fits-all voting recommendations of proxy advisors,” said law firm, Clearly Gottlieb.
4. Artificial Intelligence: Perhaps most transformational of all will be AI. “Imagine an AI agent that can review dozens or hundreds of proxy statements, assess them against your expressed values, and efficiently generate a large quantity of principled voting recommendations. And, pretty much, for free,” the SEC’s Brian Daly said in a recent speech: “This isn’t science fiction - it’s a near-term reality.”
   
   JPMorgan Chase is expected to rely on a new AI platform proxy IQ. A major Canadian fund manager believes that AI will soon determine votes on the 90% of routine votes, all overseen by a single employee. However, like any PA employee, AI can miss nuances or refer to the wrong person. Then, to whom can one appeal? This is about governance not technology. Boards should be careful what they wish for.