Proxy advisors face fresh scrutiny: same old criticisms, but one major shift in investor perspective

Proxy advisors are once again facing increased scrutiny, as recent developments suggest a wave of recalibration in how their output is generated, utilized, and regulated may be on the horizon. The Securities and Exchange Commission (SEC) has been raising concerns about proxy advisors since 2013, with unsuccessful attempts to regulate them in the years following. In 2023, unsuccessful litigation ensued to reinstate the regulation, followed by a Texas state law still under litigation aimed at regulating the advisors.

A December 2025 Executive Order titled “Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors” has triggered renewed action. The Order directs federal agencies to increase oversight of proxy advisors, prompting the SEC to informally re-engage on the topic. A Director at the SEC noted that proxy voting is a fiduciary function and should not solely rely on third-party recommendations. In addition, Institutional Shareholder Services (ISS) and Glass Lewis (GL) are shifting their offerings toward research and customizable analysis rather than a one-size-fits-all voting recommendation. Notably, J.P. Morgan Asset Management decided in early January 2026 to cease the use of ISS/GL and will transition to an internal AI-supported platform.

The December 11, 2025 Executive Order calls for a review of existing guidance related to proxy advisors and consideration of revisions or rescissions inconsistent with the Order’s objectives. The Order also mandates the enforcement of federal securities laws’ anti-fraud provisions in cases of material misstatements or omissions in proxy advisors’ recommendations. Furthermore, it prompts the investigation of whether proxy advisors should register as investment advisers under the Investment Advisers Act, enhances transparency around recommendations, methodologies, and conflicts of interest, inquiring about diversity, equity, inclusion (DEI), and environmental, social, and governance (ESG) factors. The FTC, in consultation with the DOJ, is directed to review state antitrust investigations and probe unfair, deceptive, or anticompetitive practices by proxy advisors, while the DOL will revisit ERISA-related fiduciary guidance concerning proxy voting.

Although no concrete steps have been taken following the Executive Order, potential penalties on proxy advisors for misstatements or omissions in their reports could be imposed, pressuring advisors to share reports with issuers before publication. This could also lead to an increase in transparency in methodology, the removal of ESG/DEI-based recommendations, and a general weakening of ISS and GL through antitrust litigation.

In a speech delivered on January 8, 2026, SEC Division of Investment Management Director Brian Daly emphasized that proxy voting is a fiduciary function and urged investment advisers to reassess routine reliance on proxy advisory firms. Daly stated that investment advisers must vote in clients’ best interests on an informed basis, noting the permissible alternative of refraining from voting in certain cases where costs outweigh benefits. He emphasized that investment advisers cannot outsource fiduciary judgment entirely and highlighted the importance of clear, accurate disclosures regarding the use of artificial intelligence tools in managing proxy voting.

ISS and GL are adapting their services to cater to investor demand for customization and reduce dependence on a single standardized voting recommendation. The firms are moving towards offering research and personalized analysis to better meet the evolving needs of investors.