For decades—long before it became popular to do so—the first author has been vocally questioning the credibility of proxy advisory firms. And he’s not alone.
As Jamie Dimon incisively warned in his recent shareholder letter, “it is increasingly clear that proxy advisers have undue influence. Many companies would argue that their information is frequently not balanced, not representative of the full view, and not accurate.” Similarly, Elon Musk blasted ISS and Glass Lewis as “corporate terrorists” after the proxy advisers attempted to usurp voting power rightfully belonging to the shareholders.
Regardless of how you feel about the $1 trillion pay package that was up for shareholder approval at that time, it was noteworthy that shareholders overwhelmingly joined Musk in repudiating the proxy advisers—showing just how ineffectual and problematic these firms can be.
We would not use the term “terrorist,” nor would we call them “extortionist,” but we would go so far as to say that “some might say it resembles an extortion scheme!”
Here are some of the primary reasons I’ve identified and trumpeted over decades for why proxy advisory firms are problematic:
### Rampant Conflicts of Interest
As the first author wrote in the Wall Street Journal in 2003, “some of the governance ratings agencies look dodgier than the companies they watchdog,” pointing out that these same ratings firms try to hawk consulting services to companies whose proposals they also rate. This creates at least some appearance of pay-to-play.
“This starts to resemble the protection schemes of bullies or the conflicts of auditors/consultants which governance gurus decry,” the first author wrote. “ISS directly sells advice to institutional investors on voting their proxies while at the same time it sells advice to management on how to protect itself from these investors’ proxies.”
### Outdated Checklist Approach Reflecting Superstition, Not Fact
Proxy advisory firms are often staffed by inexperienced employees lacking governance expertise. They work off unthinking checklists of highly stringent standards, many of which reflect superstition rather than fact.
Key scoring dimensions such as limiting CEO or director tenure, implementing a formal retirement age, or mandating the separation of the chair and CEO often have little basis in empirical evidence. Ironically, some of the most prominent corporate scandals over the past few decades—from Enron to WorldCom to Tyco—scored highly on these spurious checklists, demonstrating how ineffective they really are in distinguishing good governance from bad.
At times, the proxy advisers themselves have been guilty of misconduct. For example, an influential ISS analyst who recommended HP’s disastrous merger with Compaq was later found to have falsified their own credentials.
### Rampant Factual Errors
I have been vocal in repeatedly calling out instances where the work of proxy advisory firms is so sloppy that it contains basic factual errors—errors that can be hugely consequential.
For example, during Disney’s heated proxy fight with Nelson Peltz, one major proxy advisory firm egregiously miscalculated CEO Bob Iger’s stock performance, mistakenly attributing underperformance to Iger that was actually due to his successor, Bob Chapek. Similarly, ISS blamed Disney for not bringing Mason Morfit of ValueAct onto the board, even though Morfit has repeatedly disclaimed, both publicly and privately, any interest in serving.
### The Original Proxy Advisors and Their Legacy
Proxy advisory firms have not always been all bad. The genuine, original proxy advisors—such as Nell Minow and Bob Monks, who co-founded ISS, and Ralph Whitworth of Relational Investors—pioneered the proxy advisory concept in the 1980s. They worked alongside peer shareholder rights groups such as The Council of Institutional Investors, United Shareholders Association, and the Investor Responsibility Research Center.
These pioneers were at the forefront of a virtuous and necessary movement in corporate governance, bringing accountability, transparency, and shareholder value to the forefront while exposing and ending rampant corporate misconduct, cronyism, and excess.
### Decline Amid Misconduct and Cronyism
Unfortunately, over time, the leading proxy advisory firms themselves have been overtaken by misconduct, cronyism, and excess. This trend accelerated especially as these firms repeatedly traded hands between a rotating cast of conflicted foreign buyers and private equity firms.
ISS alone has changed ownership no less than eight times in the last three decades. One wonders how these proxy advisory firms are supposed to evaluate long-term shareholder value when their own governance resembles a problematic game of musical chairs and hot potato.
For too long, proxy advisors have been a scourge in the corporate governance landscape. The Trump administration deserves credit—from across the political spectrum—for acting on this critical challenge.
*The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.*
https://fortune.com/2025/11/16/trump-is-right-on-proxy-advisory-firms-iss-glass-lewis-musk-dimon/
