Pressure on proxy advisors has reached a boiling point. After years of being targeted by politicians and business lobbyists, change has come to these small firms that play a big role in public companies.
Executives, investor relations officers, and board members involved with shareholder engagement, be warned: your job is about to get more complicated.
The consolidated shareholder feedback that Institutional Shareholder Services (ISS) and Glass Lewis provided over the last several decades is placing more decision-making power into the hands of their investor clients.
For example, the ability for an IRO to look at one proxy advisor report for a summary of how dozens of investors intend to vote is steadily going away. Learning where those investors stand on a particular proposal or a contested situation will now mean having many individual conversations with portfolio managers, a time-consuming and potentially complicated process.
News since the start of the year that JPMorgan Chase’s and Wells Fargo’s asset management arms are cutting ties to proxy advisors and using AI for their voting further complicates the picture for IROs trying to get a sense of where their shareholders are leaning.
Companies both small and large need to understand what’s behind these impending proxy advisor changes and what’s at stake when it comes to taking the pulse of investors.
"A company’s engagement strategies should focus on key holders, not just proxy advisors, and disclosure and engagement presentations should be customized to focus on key issues for individual investors, including retail investors,” Lillian Tsu and Shuangjun Wang, Partners at Cleary Gottlieb Steen & Hamilton, wrote in a blog last month for the Harvard Law School Forum on Corporate Governance.
State of play
The most significant moves so far come from Glass Lewis, which said last year that it will end its benchmark recommendation for clients starting in 2027.
The benchmark, or “house view” as it’s known, is a core function of what this cottage industry has done since its inception. Proxy advisors survey their investor clients to get a sense of where they stand on a variety of issues. With that feedback in hand, each proxy advisor then forms a collective opinion on how to vote on those issues. For example:
Glass Lewis’ benchmark voting policy in 2025 stated that separating the CEO and chair position at a company was better governance than combining the role.
With that “house view,” Glass Lewis clients who default to the firm’s benchmark policies would automatically vote in favor of a shareholder proposal that calls for a company to split a combined CEO/Chair role.
After this year, the decision on how to vote for a split role will depend on the client’s approach to the topic, not the benchmark policy.
“Companies that invest in thoughtful, credible engagement will be better positioned for the proxy season, instead of solely relying on shaping their governance and other practices around one-size-fits-all voting recommendations of proxy advisors,” Cleary Gottlieb’s Tsu and Wang wrote.
Glass Lewis
Next year, deferring only to Glass Lewis’ house view will no longer be an option. If ISS goes down a similar path, IR teams will need to extend themselves much wider than normal to get the individual views of shareholders on key policies and proposals.
Glass Lewis is moving to have standard policy clients craft their own voting framework. The firm will move away from singularly-focused research and vote recommendations based on its house policy, and shift to providing multiple perspectives that reflect the viewpoints of clients. While still under development, the perspectives include management aligned, governance fundamentals, active owner, and sustainability.
ISS
While ISS has not gone as far as ending its benchmark policy, the firm has said that most of its clients operate this way already.
“Approximately 90% of voted shares processed by ISS globally are tied to voting policies customized by the investor, instead of utilizing ISS’ Benchmark or Specialty policy options,” ISS says in a fact sheet posted on its website.
Indeed, ISS has offered off-the-shelf specialty policies for years, ranging from Taft-Hartley labor-focused policies to faith-based ones focused on Catholicism.
It should be noted that the customized policies that ISS and Glass Lewis offer are developed by their respective research teams, and not AI agents. While automated AI proxy voting poses a potential threat to the proxy advisors, it’s still largely a human touch business. And both advisors will continue to issue voting recommendations for contested situations such as a hostile takeover or an activist investor’s move to capture board seats.
What to do
Here are a few considerations for IRO’s, executives, and directors to consider moving forward when it comes to shareholder engagement.
Embrace AI, because AI is reading your proxy.
Whether an investor adopts AI fully for shareholder proposals or not, they’re already using it to parse through proxies.
Run your proxy through an AI prompt and see what comes out. AI could point to red flags that you can fix before the filing goes out to investors.
Allow AI to spot patterns on any areas that may need addressing before the AGM.
Prepare for future scenarios.
What would an IR team do if they need quick investor feedback and don’t have the benefit of a proxy advisor report? Create an action plan.
Ask yourself and your IR peers if you have the people and processes in place to handle complex shareholder issues without a centralizing agent.
Don’t panic
Proxy advisor changes are still developing, and this proxy season will see the same policies as before. Start understanding the changes ahead but know that there is more to come from regulators and the sector itself.
Contact FGS Global for help navigating and addressing these challenges.