Input Stories

The NAM supports President Trump’s recent executive order to rein in proxy advisory firms—and the Securities and Exchange Commission should use its existing authority to begin implementing reforms, the NAM said this week.

What’s going on: Putting President Trump’s EO into action would “protect manufacturers, manufacturing workers and Main Street investors from the firms’ outsized influence,” the NAM told the SEC on Tuesday.

• For more than a decade, the NAM has sounded the alarm on the need to rein in these underregulated entities, which advise institutional investors on how to vote at corporate annual meetings but in truth wield outsized, harmful influence on public companies, threatening growth and jeopardizing shareholder returns.

Why it’s important: The influence of the two major U.S. proxy advisory firms—ISS and Glass Lewis—is pervasive and has far-reaching, negative consequences, the NAM explained. These include:

• The proxy firms’ business practices, conflicts of interest and political views that distort productive engagement between companies and their investors;
• The finding by multiple studies that the firms exercise material influence on proxy voting outcomes, including on board elections, equity plans, say-on-pay votes and shareholder proposals; and
• The proxy firms’ “robo-voting” platforms automatically cast votes on behalf of their clients often before companies have a chance to request the correction of errors in the firms’ research reports.

What should be done: To safeguard shareholders and improve the regulatory climate for public companies, the NAM urged the SEC to:

• “[U]ndertake a rulemaking to establish a series of conditions that proxy firms must meet to qualify for a regulatory exemption (or qualify for a safe harbor) from the more extensive requirements that other [registered investment advisers] are subject to”;
• “[M]ake clear that proxy advice is subject to the general anti-fraud standards of Section 206 of the Advisers Act, which prohibits advisers from defrauding, deceiving or manipulating clients”;
• Consider issuing new guidance addressing transparency around the proxy firms’ voting policies and research practices;
• Issue guidance or rulemaking to replace the “robo-voting” guidance that was rescinded in 2022 to clarify for investment advisers their fiduciary duties when using the proxy firms’ automated voting systems; and
• Engage in rulemaking to permanently limit the proliferation of shareholder proposals that pertain to nonmaterial environmental, social and political topics.

The last word: Implementing these reforms would help not just individual shareholders, but the U.S. economy overall, the NAM concluded.

• “In the long run, manufacturers believe that proxy firm reform would make America’s capital markets more welcoming to IPOs and help reverse the steady decline in the number of U.S. public companies,” said NAM Senior Director of Corporate Finance Policy Ted Allen.