by David A. Katz, Elina Tetelbaum, and Loren Braswell
Left to proper: David A. Katz, Elina Tetelbaum, and Loren Braswell (photographs courtesy of Wachtell, Lipton, Rosen & Katz)
On December 11, 2025, President Trump issued an Govt Order titled “Defending American Traders From Overseas-Owned and Politically Motivated Proxy Advisors,” which is aimed toward “increas[ing] oversight of and tak[ing] motion to revive public confidence within the proxy advisor trade, together with by selling accountability, transparency, and competitors.”
Focusing on the proxy advisors as “foreign-owned,” the Govt Order states:
[T]hese proxy advisors wield monumental affect over company governance issues, together with shareholder proposals, board composition, and govt compensation, in addition to capital markets and the worth of People’ investments extra usually, together with 401(ok)s, IRAs, and different retirement funding autos. These proxy advisors often use their substantial energy to advance and prioritize radical politically-motivated agendas — like “range, fairness, and inclusion” and “environmental, social, and governance” — despite the fact that investor returns must be the one precedence. For instance, these proxy advisors have supported shareholder proposals requiring American corporations to conduct racial fairness audits and considerably cut back greenhouse fuel emissions, and one continues to supply steering primarily based on the racial or ethnic range of company boards.
The Govt Order mandates that:
(i) the Securities and Alternate Fee (SEC) Chairman (a) evaluation all guidelines, rules, steering, bulletins, and memoranda referring to proxy advisors, and think about revising or rescinding them, particularly to the extent that they implicate “range, fairness, and inclusion” (DEI) and “environmental, social, and governance” (ESG) insurance policies; (b) implement the Federal securities legal guidelines’ anti‑fraud provisions with respect to materials misstatements or omissions contained in proxy advisors’ voting suggestions (and, presumably, the accompanying reviews); (c) assess whether or not to require proxy advisors to register as Registered Funding Advisers; and (d) think about requiring proxy advisors to supply elevated transparency on their suggestions, methodology, and conflicts of curiosity, particularly relating to DEI and ESG;
(ii) the SEC Chairman think about revising or rescinding all guidelines, rules, steering, bulletins, and memoranda referring to shareholder proposals, together with Alternate Act Rule 14a-8, which are inconsistent with the aim of the Govt Order;
(iii) the SEC Chairman analyze whether or not a proxy advisor serves as a car for funding advisers to coordinate and increase their voting choices with respect to an organization’s securities and, via such coordination and augmentation, kind a “group” for functions of the Alternate Act;
(iv) the Federal Commerce Fee (FTC) Chairman examine whether or not proxy advisors have interaction in unfair strategies of competitors or unfair or misleading acts or practices that hurt United States customers or have interaction in conduct that violates the federal antitrust legal guidelines; and
(v) the Secretary of Labor (a) revise rules and steering relating to the fiduciary standing of people who handle or, like proxy advisors, advise those that handle shares held by plans coated beneath the Worker Retirement Revenue Safety Act of 1974 (ERISA), together with proxy votes and company engagement, per the Govt Order; and (b) strengthen the fiduciary requirements for ERISA plans, together with assessing whether or not proxy advisors act solely within the monetary pursuits of ERISA plan members.
The Govt Order is the most recent in a sequence of legislative and regulatory actions focusing on proxy advisors. As we beforehand mentioned, the Home of Representatives Monetary Companies Committee held a listening to in April 2025 titled “Exposing the Proxy Advisory Cartel: How ISS & Glass Lewis Affect Markets,” and the Home of Representatives Judiciary Committee held a listening to in June 2025 titled “The Proxy Advisor Duopoly’s Anticompetitive Conduct.” As well as, the Attorneys Common of Florida, Missouri, and Texas have introduced investigations into Institutional Shareholder Companies (ISS) and Glass Lewis relating to alleged deceptive representations about their consideration of ESG elements and potential client safety legislation violations. Texas additionally adopted SB 2337, a legislation requiring proxy advisors to reveal whether or not their suggestions for Texas corporations are primarily based on non-financial elements like ESG or DEI, however a preliminary injunction has been issued, placing the brand new legislation on maintain, with the trial at present scheduled for February 2026. Glass Lewis has already indicated that, beginning in 2027, it is going to now not publish its benchmark coverage pointers or present analysis and voting suggestions primarily based upon its benchmark pointers.
The Govt Order additionally marks the most recent growth with respect to Rule 14a-8 proposals. As we beforehand mentioned, the SEC has reconsidered its “position within the Rule 14a-8 course of for the 2025-2026 proxy season” and won’t be responding to no-action requests relating to the exclusion of shareholder proposals beneath Rule 14a-8, aside from requests to exclude proposals which are improper beneath state legislation, pursuant to Rule 14a-8(i)(1). The SEC Chairman beforehand indicated that precatory shareholder proposals might not be a “correct topic” for motion by shareholders beneath sure state legal guidelines.
In a proxy season that’s already rife with uncertainty, the issuance of the Govt Order provides an extra layer of complexity. The rising scrutiny of ISS and Glass Lewis will enhance strain on traders to undertake their very own voting evaluation and never rely totally on the suggestions of the proxy advisors, which can be burdensome, notably for big institutional traders who personal shares in lots of corporations and must solid votes on 1000’s of routine issues. And, as we noticed when the SEC revealed new C&DIs on the supply of 13G, traders could await steering on how their use of proxy advisory companies might have an effect on their Schedules 13D and 13G submitting obligations. For corporations, voting outcomes could develop into much less predictable if the affect of ISS and Glass Lewis subsides though it could enhance alternatives to solicit in assist of firm initiatives.
It stays to be seen how the SEC, FTC, and Division of Labor will act on the mandates within the Govt Order, and whether or not the SEC will place vital limitations on the proxy advisors’ capacity to make suggestions with respect to DEI and ESG insurance policies and practices. Notably, the Govt Order, and the corresponding regulatory scrutiny, doesn’t lengthen to index funds, who are sometimes supportive of corporations in contested conditions and are vital stalwarts in opposition to short-termism.
David A. Katz and Elina Tetelbaum are Companions, and Loren Braswell is Counsel at Wachtell, Lipton, Rosen & Katz. This publish first appeared as a shopper memo for the agency.
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