US Justice Department raises antitrust concerns over proxy advisers, shaking up corporate governance industry

The US Department of Justice just pulled the rug out from under one of the most quietly powerful industries in American finance. On August 5, the DOJ withdrew a 1987 Business Review Letter that had effectively given proxy advisory firm Institutional Shareholder Services (ISS) a clean bill of health under antitrust law for nearly four decades. What proxy advisers actually do, and why it matters If you’ve never heard of ISS or Glass Lewis, you’re not alone. These firms advise institutional investors, think pension funds, mutual funds, and asset managers, on how to vote on shareholder proposals at public companies. Executive pay packages, board elections, mergers, and increasingly, ESG-related proposals all flow through their recommendation engines. Together, these two firms control more than 90% of the proxy advisory market for US institutional investors. ISS has evolved significantly since 1985, when it was founded. The firm now provides advisory services on executive compensation and governance to the very corporations whose shareholders it also advises. That dual-client model is precisely what raised red flags. The DOJ concluded that ISS’s current business practices differ meaning...