In the latest shift in power from investors to corporate boardrooms under the Trump administration, the ability of US pension funds to use proxy advisors like Institutional Shareholder Services (ISS) and Glass Lewis to advise and vote on corporate decisions on their behalf has come under fresh scrutiny and restriction.
President Trump’s executive order “Protecting American Investors from Foreign-Owned and Politically Motivated Proxy Advisors” ramps up federal scrutiny of proxy advisory firms, and states that returns should be the only priority in advising investors.
Proxy voting is an important tool for investors seeking to influence a company’s governance practices according to their own board-approved governance and sustainability principles. But under the latest edict, investors can no longer wholly rely on the recommendations of their proxy advisors and must do the work themselves in a time-consuming process, particularly for large institutional investors which own shares in many companies and need to vote on thousands of routine matters.
What is the impact?
On one hand, Trump’s executive order may only have a limited impact. The executive order only directs US government agencies to review their existing regulations and guidance pertaining to proxy advisors: it would take months, for example, for the SEC to actually modify its regulations.
“There is little risk of wholesale change before the 2026 proxy season,” argues Peter Kimball, a Washington-based director at Willis Towers Watson.
Still, Kimball warns that February 2025 showed that with respect to engagement and Schedule 13G eligibility, SEC staff guidance can be “changed quickly and without notice,” in a process that “warrants continued monitoring”.
Proxy firms – which have swiftly issued responses on their enduring commitment to continue to operate in the best interests of their clients – are also well down the road when it comes to changing their operations.
From the beginning of 2027, Glass Lewis will move to more customised proxy voting guidelines to better suit clients’ individual priorities rather than a single “house” recommendation. According to a recent webinar on ESG guidelines, it said new thematic voting recommendations will fall into four “perspectives” to reflect the varied viewpoints of its clients.
ISS has also revised its proxy voting guidelines to no longer generally recommend voting for ESG proposals and will instead evaluate these proposals on a case-by-case basis.
Moreover, Kimball notes that virtually all institutional investors have had customised arrangements with their proxy advisors for many years anyway.
Institutions provide the proxy advisor with a set of voting priorities and the proxy advisor delivers not only its benchmark or in-house proxy advisory report, but also a custom report marrying the proxy advisor’s analysis with the institution’s voting priorities, he explains. Alongside custom reports and recommendations, institutions also have their own internal voting teams.
“Even the proxy advisors’ customised recommendations are often not determinants of voting decisions, but rather data points in the institutional investors’ own analysis,” says Kimball.
It’s certainly the case at CalPERS.
Last year, the investment team voted proxies at more than 10,000 shareholder meetings, translating to 95,000 individual votes across 63 countries on issues such as say-on-pay, board independence and diversity using several research providers, including proxy advisory firms ISS and Glass Lewis.
But despite the volume of votes cast, the notion that institutional investors rely solely on proxy firms is misguided. Before casting a vote, the CalPERS internal team do their own research into the companies the pension fund owns in a process that requires “hundreds of hours of work” – one corporate proxy statement can be 75 to 100 pages long.
And CalPERS often has a different opinion from its advisors, noted CEO Marcie Frost, speaking on the topic at the June 2025 board meeting.
Last year, it voted in alignment with corporate management’s recommendations approximately 74 per cent of the time, while Glass Lewis aligned with management 90 per cent of the time.
“CalPERS doesn’t, nor has it ever, relied solely on these recommendations for our voting decisions. This is a common misconception in the marketplace,” she said.
Other pension funds also show this hands-on approach. In 2022, the Teacher Retirement System of Texas (TRS) introduced a customised benchmark to give the fund the freedom to vote alongside corporate management on climate policy in accordance with its own views. In 2023, West Virginia Investment Management Board also began its own process of digging into the voting practices of every external manager to analyse votes cast in Virginia’s name; educate trustees and if necessary, vote the proxies itself.
More risk for investors
But the executive order does feed into an ongoing crimping of US investor power.
At the beginning of last year, the SEC changed its long-standing guidance by forcing passive investors to file costly and onerous disclosure forms if they wanted to press companies on ESG issues. The US administration is also exploring ways to curb the voting influence of the big three passive firms BlackRock, Vanguard and State Street, whose index funds typically own 20-30 per cent of most public companies.
Several US states have also advanced or passed laws banning the consideration of ESG factors in investment and proxy-voting decisions. According to a statement from trustees of the five New York City public pension systems, this has led to a growing reluctance to support shareholder proposals, including those focused on long-term risk management.
“Average support for ESG shareholder proposals, (excluding anti-ESG proposals) fell to its lowest level since 2018 despite continued investor awareness of financial risks related to the management of climate and workforce issues,” state the trustees who flag the complexity and cost incurred by investors to undertake their own proxy analysis.
Despite the challenging environment for shareholder engagement, the investor said shareholder proposals continue to serve an important role as an effective catalyst for productive dialogue and positive outcomes, as detailed in the following report.
“Looking ahead, NYCRS remains firmly committed to advancing sustainable and accountable corporate practices through active ownership. The 2025 season highlighted the importance of protecting the integrity of the shareholder proposal process and ensuring that investors can continue to raise material concerns essential to long-term value creation.”
