Shareholder Engagement: Is the Power of Proxy Advisors and Institutional Investors Shifting?

Proxy advisory firms—principally ISS and Glass Lewis—and large institutional investors, such as Blackrock, Vanguard, State Street and Fidelity, have long played a central role in shaping shareholder voting outcomes at U.S. public companies.

Historically, for a significant portion of U.S. public company shares, especially retail holders and mutual fund and ETF investors, shareholder voting decisions are not made by the beneficial owners of the stock, but rather their investment advisers, who often follow the voting recommendations of proxy advisory firms and may use the voting principles of large institutional investors as guidance.

Recent backlash targeting proxy advisory firms and large institutional investors, like the executive order issued by President Trump in December 2025, as well as a litany of committee hearings in the House of Representatives scrutinizing the influence and power of proxy advisory firms and various state Attorneys General investigations and lawsuits against ISS and Glass Lewis may result in a shift in how voting decisions may be made going forward. Against the backdrop of these developments, the key question for U.S. public companies and their boards is, “who will be driving voting outcomes—and how should companies respond?”

The Traditional Framework

ISS and Glass Lewis have historically dominated the proxy advisory industry: according to statements made at a hearing before the Subcommittee on Capital Markets of the Committee on Financial Services of the House of Representatives on April 29, 2025 (the April Committee Hearing), ISS and Glass Lewis collectively “control 97 percent of the proxy advisory market.”[1] Their voting recommendations have had significant influence over shareholder voting decisions in connection with director elections, say-on-pay advisory proposals, shareholder proposals and contested matters. They are viewed as a primary input for many institutional investors, which own an overwhelming majority of outstanding shares of publicly traded companies in the United States and have significantly higher rates of voting participation than their retail investor counterparts.[2] According to statements made at the April Committee Hearing, “when ISS or Glass Lewis recommend voting against a director, their clients are over 30 percent more likely to follow suit than nonclients.” Furthermore, according to a sample of voting records from 2017:

“95 percent of institutional investors vote in favor of a company’s ‘say on pay’ proposal when ISS recommends a favorable vote while only 68 percent vote in favor when ISS is opposed (a difference of 27 percent). Similarly, equity plan proposals receive 17 percent more votes in favor; uncontested director elections receive 18 percent more votes in favor; and proxy contests 73 percent more votes in favors when ISS also supports a measure. . . . Glass Lewis favorable votes are associated with 16 percent, 12 percent, and 64 percent increases in institutional investor support for say on pay, equity plan, and proxy contest ballot measures. Furthermore, some individual funds vote in near lock-step with ISS and Glass Lewis recommendations, correlations that suggest that the influence of these firms is substantial.”[3]

As a result of their influence over voting outcomes for proposals presented at a shareholder meeting, ISS’s and Glass Lewis’ voting guidelines and principles have had lasting impacts on public company governance profiles, as companies regularly tailor their governance decisions after considering how ISS and Glass Lewis may view such decisions.

What Is Changing?

Scrutiny of proxy advisory firms is not new and has been contentious. The SEC’s attention on proxy advisory firms and related regulatory oversight has been building for the past two decades, culminating in rules and interpretive guidance published in July 2020 that imposed moderate additional requirements on proxy advisory firms.[4] This guidance was later vacated by the U.S. Court of Appeals for the D.C. Circuit affirming a lower court’s decision in July 2025. More recently, scrutiny over the influence of proxy advisory firms has moved from the SEC to the executive and legislative branches of the U.S. federal government—and with it, we are seeing reactionary changes from proxy advisory firms, institutional investors and companies alike.

Executive Orders

On December 11, 2025, President Trump issued an Executive Order, “Protecting American Investors From Foreign-Owned and Politically Motivated Proxy Advisors,” to “increase oversight of and take action to restore public confidence in the proxy advisor industry, including by promoting accountability, transparency, and competition.”[5] The Executive Order mandates the Chairman of the Securities and Exchange Commission to “review all rules, regulations, guidance, bulletins and memoranda relating to proxy advisors . . . and consider revising or rescinding . . . [any] that are inconsistent with the purpose of th[e] order, especially to the extent that they implicate ‘diversity, equity, and inclusion’ and ‘environmental, social, and governance’ policies.” The Executive Order follows a series of committee hearings in the House of Representatives that have heightened scrutiny on proxy advisors, including the April Committee Hearing, which described ISS and Glass Lewis as “the proxy advisory cartel” and was intended “to shine a light on how the proxy of [sic] process is functioning and, in many ways, failing today’s markets.”

Investigations and Lawsuits

Various state Attorneys General, including from Texas, Florida and Missouri, have initiated investigations, launched enforcement actions and filed lawsuits against ISS and Glass Lewis, alleging that the proxy advisory firms have been misleading investors by pushing ESG and DEI agendas instead of basing voting recommendations on impartial factors relating to financial performance and principles.[6] ISS and Glass Lewis have also been facing antitrust/regulatory pressure as the U.S. Federal Trade Commission is investigating them for potential antitrust concerns—namely whether their dominant market positions and their influence over shareholder votes constitute anti-competitive behavior. Of particular concern to the FTC are conflicts of interest where a firm might both (1) advise a company’s shareholders on how to vote, and (2) simultaneously provide consulting services to the company (e.g., say-on-pay, equity plans)—raising “pay-to-play” or vote-influence issues.

Policies and Business Model Changes

ISS, Glass Lewis and certain institutional investors have recently pared back their voting principles and guidelines relating to ESG shareholder proposals and DEI proposals in response to the current political climate. For example, in response to President Trump’s executive order, “Ending Radical And Wasteful Government DEI Programs And Preferencing,” from January 20, 2025, and to the rise of anti-ESG shareholder proposals in recent years, these firms and institutional investors have changed previous brightline guidelines to more nuanced case-by-case analyses on many ESG and DEI related proposals.

Furthermore, business model changes are underway for proxy advisor services, driven by a mix of factors, including investor demand for tailored voting strategies, regulatory/legislative scrutiny of the proxy advisor model over recent years and profit incentives (the ability to command premium pricing for customized reports). For example, Glass Lewis is moving away from its longstanding “benchmark” or “house policy” voting recommendation model. Starting in 2027, it will offer customizable perspectives (e.g., management-oriented, governance-oriented, activism-oriented, sustainability-oriented) instead of a one-size-fits-all recommendation. We expect the business model and custom services to continue to evolve, with many mechanical details still to come. For example, ISS has already introduced services (e.g., “Gov360,” “Custom Lens”) that decouple pure voting recommendations from its research, shifting toward more customizable client offerings rather than default advice.

Institutional Investor Voting Practices and Engagement

In recent years, institutional investors like Blackrock and Vanguard have expanded their in-house governance and stewardship teams. Where historically voting guidelines and recommendations came from ISS and Glass Lewis, many institutional investors now have their own voting guidelines and are becoming less reliant on and more skeptical of proxy advisor recommendations.

Taking this one step further, on January 7, 2026, JPMorgan Chase’s asset management unit announced that it would be “cutting all ties with proxy advisory firms, effective immediately” and is purported to be “the first large investment firm to entirely stop using external proxy advisors.”[7] JPMorgan’s asset management unit is one of the largest investment firms in the world, with more than $7 trillion in client assets, and had previously stopped using proxy advisors for voting recommendations in favor of using its own internal stewardship team.  

In tandem with investors becoming more sophisticated and evaluating proposals on their own merits instead of fully relying on ISS and Glass Lewis for recommendations, companies are increasing direct shareholder engagement off-season and in proxy season with institutional and key investors. The increase in shareholder engagement has resulted in enhanced governance and compensation disclosure, as well as higher rates of withdrawn shareholder proposals during the proxy season.

The Influence of Proxy Advisors is Evolving, Not Disappearing

For all the reasons noted above, the market has seen reduced automatic reliance on proxy advisor recommendations, and a growing divergence between proxy advisor recommendations and investor voting outcomes. In recent years, there has been a greater emphasis on a company’s shareholder engagement history and responsiveness to shareholder feedback in the evaluation of whether to vote with management.

On the other hand, while proxy voting recommendations may not be as influential as they once were, ISS and Glass Lewis continue to be relevant as sophisticated research tools for their clients. Their new products and business strategies, as discussed above, focus on customizable research support and resources, rather than on strict voting recommendations. Over time, we expect that proxy advisors will become one data point for consideration in investors’ evaluations of proposals instead of the final decision-maker.

Key Takeaways for U.S. Public Companies and Boards

With this evolution, individual company shareholder engagement will become more crucial in persuading shareholders to support the recommendations of management and work with the company on governance and other changes that stakeholders believe to be beneficial. In fact, shareholder engagement should be considered by U.S. public companies as a core governance function, and engagement strategies should keep in mind that proactive engagement can shape voting outcomes before the proxy season even begins. Shareholders may request engagement with members of the board in certain circumstances, and we may see directors playing a more visible role in shareholder dialogue going forward.

Investors have differing priorities, policies and decision-making frameworks, and they are increasingly exercising greater independent judgment. As such, 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. 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.

[1] House Financial Services Committee, “Exposing the Proxy Advisory Cartel: How ISS & Glass Lewis Influence Markets” (April 29, 2025), available here.

[2] See David F. Larcker, Brian Tayan and James R. Copland, “The Big Thumb on the Scale: An Overview of the Proxy Advisory Industry” (June 14, 2018), available here.

[3] Id.

[4] For more information, see our July 2020 alert memo available here.

[5] The White House, “Protecting American Investors From Foreign-Owned and Politically Motivated Proxy Advisors” (December 11, 2025), available here.

[6] See Ken Paxton, Attorney General of Texas, “Attorney General Ken Paxton Investigates Proxy Advisors Glass Lewis and ISS for Misleading Public Companies to Push Radical Agenda” (September 16, 2025), available here; James Uthmeier, Attorney General of Florida, “Attorney General James Uthmeier Sues Proxy Advisory Giants for Deceiving Investors and Manipulating Corporate Governance” (November 20, 2025), available here; Missouri Attorney General, “Attorney General Bailey Leads Fight Against Hidden ESG And DEI Agendas In Corporate America” (July 11, 2025), available here.

[7] Jack Pitcher, Wall Street Journal, “JPMorgan Cuts All Ties With Proxy Advisers in Industry First” (January 7, 2026), available here.