OPINION:
Earlier this month, President Trump took decisive action to protect American investors by signing an executive order aimed at curbing the influence of foreign-owned and politically motivated proxy advisory firms.
These firms quietly shape the way in which trillions of dollars in American retirement savings are voted upon, often with little transparency, limited accountability and growing disregard for shareholder value and affordability for working families.
As West Virginia state treasurer, I saw this insidious scheme firsthand. When major Wall Street banks refused to finance or underwrite energy projects in our state, I led the charge to stop them. West Virginia was one of the first states to enact legislation cutting off state business with banks that discriminate against energy producers, a model later adopted by many other states. That fight showed just how deeply political activism had infected the financial system.
Now, as a member of Congress, I have seen this war move to a different front: proxy advisory firms. These firms, which advise asset managers on how to vote the shares they control, must be addressed next.
Just two foreign-owned firms, Institutional Shareholder Services and Glass Lewis, now influence more than 97% of proxy votes in corporate America. Their recommendations determine how trillions of dollars in assets — including retirement savings, public pensions and index fund holdings — are voted upon. Too often, these firms use their influence to advance harmful political agendas rather than protect shareholder value. Dollars should follow returns, not political ideas.
This shift has real consequences. Proxy advisory firms frequently pushed companies to embrace rigid net-zero emissions targets promoted by radical nongovernmental organizations through shareholder resolutions. The proxy advisers would support these groups’ calls to have the utilities that generate America’s power abandon cheap, depreciated power plants. The costs of building the wind and solar generation needed to replace them, and the transmission needed to support them, impose real and massive costs.
These are borne by consumers through higher electricity bills and higher prices. At a time when families are already struggling with affordability, this proxy-adviser-driven activism only makes the problem worse.
Currently, state pension plans collectively own $5.5 trillion in assets and follow proxy adviser recommendations very closely. As recently as 2019 to 2020, most pension funds voted 99% of the time with proxy adviser advice. The proxy adviser stranglehold on institutional investors is self-evident.
Instead of producing value for workers and retirees, these firms increasingly push political mandates that have little connection to financial returns. In recent years, ideological activists have pushed proposals requiring votes on costly racial equity audits, gender quotas for corporate boards and sweeping climate targets and disclosure requirements that these same activists use to target American energy companies.
Institutional Shareholder Services and Glass Lewis often recommend supporting these measures, even when they would impose high costs on businesses and offer no benefit to retirees or workers. By following this guidance, fund managers effectively allow these firms to dictate outcomes for millions of investors. Moreover, because of the market consolidation of the Big Three institutional investors and the two proxy advisory firms, nearly half of all company elections can be controlled by these five firms.
These two foreign-owned proxy firms have made themselves into unelected power brokers in corporate boardrooms. When Institutional Shareholder Services advises investors to vote against a director, investors are 20% more likely to vote against the director, and a similar percentage for Glass Lewis. Activists’ proposals often pass not because investors demand them but because most activist managers are happy to outsource the decisions on the thousands of shareholder votes they are called upon to cast every year.
Adding insult to injury, Institutional Shareholder Services and Glass Lewis maintain consulting arms that advise companies on issues related to shareholder engagement and corporate governance. This raises serious concerns about conflicts of interest.
This is not what shareholder democracy is supposed to look like.
The solution is not to silence shareholders but to bring transparency and accountability to a system that funnels so much power into the hands of unelected middlemen. Fiduciaries must base their votes on shareholder value, not political trends or social pressure. Americans deserve to know that their retirement and other savings are working for them, not advancing agendas they do not support.
Reform is desperately needed. Proxy firms should be required to explain how they reach their recommendations, who influences their decisions and whether they are acting in the best interest of ordinary investors. Americans should also have the option to opt out when they do not want their dollars used to back causes that clash with their values. If you are putting money away for retirement, you should not have to worry whether advisory firms are using your savings to serve a political agenda that is opposed to your own beliefs.
It is time to restore accountability. That means shining a light on these firms, pressing regulators for answers and fighting to make sure the system is fair. My mission is clear: protecting hardworking Americans’ retirements, pensions and savings plans from politically motivated schemes that put ideology over return on investment. People deserve a financial system that works for them, not one controlled by unaccountable elites and activist ideologues.
• Rep. Riley Moore represents West Virginia’s 2nd Congressional District and serves on the House Financial Services Committee. He previously served as West Virginia state treasurer, where he led efforts to push back against politically driven discrimination in financial markets.
Please read our comment policy before commenting.