Pressuring Proxy Advisors: Hearing Reveals Regressive Republican Regulation Plans

September 17, 2025

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By Jack Grogan-Fenn

A hearing by the Republican-run House Committee on Financial Services has showcased pipeline of proposed regulation seeking to significantly restrict both proxy advisors and shareholder rights.

The House Committee held the hearing entitled “Proxy Power and Proposal Abuse: Reforming Rule 14a-8 to Protect Shareholder Value” last week, marking the latest of a swathe of attacks on proxy advisors and shareholder proposals which have rapidly risen since the re-election of Donald Trump.

The hearing scrutinised Rule 14a-8 under the Securities Exchange Act of 1934, which governs shareholder participation in corporate governance and allows investors to voice their concerns on companies’ proxy material. It purported to assess whether the shareholder proposal process has been “co-opted by activist investors who prioritise narrow policy goals over maximising shareholder value” rather than providing all shareholders with voice in company oversight as “originally designed to”.

The memorandum for the hearing also stated that the committee would “evaluate the influence of proxy advisory firms on capital markets, specifically their effect on corporate governance and shareholder voting outcomes”, as well as highlighting “legislative solutions to limit proposals to material issues, curb misuse by special interests, and enhance the transparency of proxy advisory firms”.

“While our proxy access process was originally designed to empower shareholders and provide them with a voice in company oversight, in recent years it has increasingly become co-opted by activist investors whose primary focus often lies not in maximising shareholder value, but in pushing narrow political, social, or personal agendas,” the committee’s Republican Chair French Hill said during the hearing.

“We’ve seen the shareholder proposal process diverted away from that critical business strategy focus and instead become a tool for advancing proposals to distract from companies’ missions leading to an erosion of shareholder value and additionally costly burdens on companies that are working to navigate today’s complex business conditions and global competition,” he said.

Hill added while proxy advisors “can offer valuable perspective” over the past two decades their “influence on corporate governance and voting on particular shareholder proposals has grown significantly”.

“We must ask ourselves if these firms are still fulfilling the intended purpose of serving in the best interests of shareholders or if they are distracting from the primary goal of enhancing long-term shareholder value,” he said.

Ann Wagner, Chair of the US House’s Subcommittee on Capital Markets, added that  “under this flawed system, companies are too often forced to waste valuable time and resources fighting proposals that are irrelevant to the company’s bottom line, hurting investors and workers alike”.

Democrat committee members defended proxy advisors and shareholder rights during the hearing, however.

Georgia’s David Scott highlighted that proxy advisors “provide critical independent research and recommendations that allow shareholders to hold boards of directors accountable and to access responses to corporate government and make the investor have some sense of protection”.

He added that proxy advisors are “not dictating outcomes”, but rather are “empowering investors, large and small, with information they would otherwise lack and need.”

New York’s Gregory Meeks, a fellow Democrat, said that “I think we’re here today because Republicans think it is bad that shareholders of companies get to decide how their companies that they own operate. They’re upset because that some shareholders of some companies choose to emphasise things like the environment, like diversity and LGBTQ rights”.

“I’ve had the opportunity to talk to some CEOs and others and when I ask “why do you do these things?” often they say to me it’s because it’s good for business, it’s good for their bottom line, that’s why they do it,” he added. “My colleagues on the other side of the aisle, I believe, are trying to turn ESG into a bogeyman.”

The hearing considered 15 items of legislation, comprising two bills and 13 discussion drafts, put forward by Republican members of the Republican-controlled committee. The House Committee on Financial Services has 30 Republican and 24 Democrat members. It is important to note that proxy advisors do not initiate shareholder resolutions themselves, something that appears to have been lost in the recent rhetoric-focused attacks.

The two bills cited in the memorandum were HR 4098, the Stopping Proxy Advisor Racketeering Act, and HR 3402, a bill to amend the Securities Exchange Act of 1934 to require certain disclosures by institutional investment managers in connection with proxy advisory firms, and for other purposes.

HR 4098 was introduced in June 2025 and is currently in the first stage of the legislative process. The bill aims to makes it unlawful for proxy advisory firms to provide voting recommendations under several circumstances: when they offer consulting services to a registered company; when they modify voting recommendations based on a company’s subscription to their services; when they provide advice during periods when they are simultaneously providing stewardship services to a shareholder proponent; or when they are members of organisations supporting shareholder-sponsored proposals related to their voting advice.

Meanwhile, HR 3402, introduced in May 2025, would require institutional investment managers to file an annual report with the Securities and Exchange Commission (SEC) explaining how they voted on shareholder proposals, the percentage of votes that aligned with proxy advisory firm recommendations, and how they considered these recommendations in their voting decisions. Additional requirements apply to managers with over U$100 billion in assets, including clarifying to customers that shareholders are not obliged to vote on every proposal and performing an economic analysis before voting on shareholder proposals to ensure the vote is in the “best economic interest” of shareholders.

The 13 discussion drafts detailed are at a more nascent stage, though they target proxy advisors and shareholder rights in several different ways.

The most intrusive of these proposed bills comprises six stringent requirements for proxy advisors. It would require proxy advisory firms to register with the SEC before providing proxy voting advice, research, analysis, ratings, or recommendations to clients, provide information about their procedures, methodologies, conflicts of interest, and qualifications of staff and permit the SEC to censure, deny, or suspend the registration of a firm if it finds this necessary for investor protection and the public interest.

It would also demand registered firms to establish policies and procedures to publicly disclose and manage conflicts of interest, and to ensure the reliability and accuracy of their proxy advice, prohibit firms from engaging in “unfair, coercive, or abusive” acts or practices related to their proxy advisory services and require registered firms to file annual reports disclosing information about their proxy recommendations, analysis, and compliance.

Another draft bill, the Performance over Politics Act, would exclude shareholder proposals from proxy or consent solicitation material if such proposals substantially implement, substantially duplicate, or are substantially similar to previously included proposals.

The Protecting American’s Savings Act would prohibit institutional investors from outsourcing voting decisions related to proxy or consent solicitation materials and establishes that no person can be required to cast votes related to such materials.

Meanwhile, the draft Corporate Governance Examination Act would require the SEC to conduct comprehensive studies every five years on shareholder proposals, proxy advisory firms, and the proxy process.

Four expert witnesses testified at the hearing: James Copland, Senior Fellow and Director of Legal Policy at the Manhattan Institute; Ferrell Keel, Partner at Jones Day; Ronald Mueller, Partner at Gibson Dunn & Crutcher; and Brad Lander, Comptroller of the City of New York.

Three of these witnesses – Copland, Keel and Mueller – spoke critically about Rule 14a-8, proxy advisors and shareholder proposals in their current form. Additionally, no witnesses from proxy advisors were called to provide evidence at the hearing.

Mueller argued that shareholder proposals “no longer are primarily focused on corporate governance issues or on providing information or input on important business activities, but instead increasingly are crafted by special interest groups focused on narrow policy issues or specific outcomes, without regard to whether or how companies may already be addressing the issue, or to other considerations that may be more significant and consequential.”

Keel, meanwhile, previously testified to the Texas State Senate Committee on State Affairs on Senate Bill (SB) 2337 and the need to regulate proxy advisors. Keel said that the “evidence[d] the continuing effort to shape Texas into a business-friendly state” and “reflect[ed] a broader, national effort to hold proxy advisors’ feet to the fire”, adding that the “proxy process is ripe for disruption and reform, and the proxy advisors are just one piece of the bigger puzzle”.   

Lander was the sole dissenting voice among the witnesses. “Strong corporate governance and risk oversight are foundational to healthy companies, pension funds, and capital markets,” he said. “As investors, we know that economic, governance, legal, operational, environmental, workforce, and reputational risks all affect company performance and shareholder value. It is our duty to weigh these risks. Shareholder proposals and engagement are among our most effective tools to do so.”

He added: “Shareholder proposals and engagement strengthen accountability, empower independent directors, and ensure that US markets remain the most trusted and resilient in the world. Don’t screw that up.”

This year has seen a major ramp-up in regulatory activity targeting proxy advisors, shareholder rights and ESG. In April, the US House of Representatives’ Committee on Financial Services held a similar hearing entitled “Exposing the Proxy Advisory Cartel”, which considered the “role and influence” of proxy advisory firms in “shaping corporate governance and shareholder voting outcomes”.

This was followed in May by  J.P. Morgan chief executive Jamie Dimon reportedly branding proxy advisors a “cancer” and advocating their elimination.

Texas’ SB 2337 also targets proxy advisors, requiring those that “deviate” from acting in the “financial interest” of shareholders to “clearly disclose that fact”, as reported by Minerva Analytics. The law was due to come into effect on September 1, but a preliminary injunction was granted by a Trump-appointed Republican judge in the state following lawsuits from two major proxy advisors. A trial is now set for February 2, 2026.

The judge reportedly said the statute wrongly compels speech by forcing the advisory firms to issue disclosures “they don’t think are accurate.”

Jones Day, Keel’s employer, has stated that it expects SB 2337 to “fundamentally change the role of proxy advisors in Texas and have ripple effects on the broader corporate governance landscape”. 

Texas’ Attorney General Ken Paxton this week launched a new investigation into two major proxy advisors, alleging they may have misled institutional investors and public companies. “Proxy firms like Glass Lewis and ISS too often sacrifice sound financial guidance to advance left-wing political goals, cheating not only investors but the American people as a whole,” said Paxton. “Proxy advisors play a massive role in shaping corporate governance decisions in our country, affecting tens of billions of dollars. My office has zero tolerance for these woke corporations smuggling radical, liberal ideology into the companies they advise and into the entirety of America’s financial system.”  

In May, Minerva Analytics’ CEO Sarah Wilson sent a letter to the US House’s Subcommittee on Capital Markets warning against the introduction of new regulation for proxy advisors. She stated that there was “no compelling legal, economic or fiduciary rationale for new proxy advisor regulation”.

In an article written for the Financial Times, Wilson said that proxy advisors are “under siege” following a series of high-profile attacks by US policymakers and that a “simmering backlash” over the activities of proxy advisory firms had “mutated into an all-out assault in the US from multiple directions”.

“This should all be seen for what it is — a rejection of democratic accountability in the financial system by attempting to neuter shareholder oversight,” she said. “The criticism misrepresents what proxy agents actually do in helping to execute votes for shareholders and providing research, parsing the dense and complex disclosures of thousands of listed companies.”

Proxy advisors are fighting back, however. In addition to securing the injunction in Texas, a federal appeals court in June found that US SEC regulations which sought to dictate the behaviour of proxy advisors is unlawful in a 3-0 decision, as reported by Minerva Analytics.

The 14a-8 rule has also been detrimentally impacted this year. In June, a federal judge approved changes to the rule which make it more challenging for shareholders to file proposals at companies’ AGMs, as reported by Minerva Analytics. Under the revised rules shareholders must have invested a minimum of U$25,000 in a company for a year to file a proposal at an AGM. This marks a significant increase in the investment requirements, with the prior regulation permitting investors to submit proposals if they owned U$2,000 or 1% of a company’s securities for at least 12 months.

The new regulation also means that shareholder proposals now must receive at least 5% of votes from investors to be refiled, an increase from the previous threshold of 3%.

Hill mentioned Staff Legal Bulletins (SLB) 14M and 14L, changes to which were one of several moves to pare back shareholder rights by the SEC this year. In February, the SEC rescinded SLB 14L, replacing it with new guidance in SLB 14M. The new guidance reinstated prior staff guidance on micromanagement, permitting shareholder proposals to be excluded more easily by companies.

This change has led to a surge in ‘no action’ appeals, preventing proposals from being voted on by shareholders at the AGMs of investee companies.

Asset managers have similarly been in the firing line of the US right wing this year. In July,  the 26 finance officials from 21 Republican states wrote to several major asset managers demanding that they scale back their ESG-related investment activities to continue to compete for business within the states. As reported by Minerva Analytics, the letter from the red states cited “deep concern” over the “erosion of traditional fiduciary duty” in American capital markets.

Last month, financial officers from 16 Democrat-run states responded by writing to BlackRock and several other high profile asset managers calling on them to publicly reassert their commitment to responsible stewardship practices and asserting that the Republican-penned letter had “misrepresent[ed] the true meaning of fiduciary duty.”

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Last Updated: 17 September 2025