White House explores rules that would upend shareholder voting

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By Ross Kerber and Manya Saini

(Reuters) -The White House is exploring new measures to curb the influence of proxy advisers which conservatives have for years complained push liberal-leaning views, according to a financial industry official briefed on the matter.

Trump administration officials are also exploring limits on how index-fund managers are allowed to vote, the person said on condition of anonymity to discuss confidential regulatory matters.

The Wall Street Journal first reported on Wednesday that administration officials are discussing at least one executive order that would restrict proxy-advisory firms such as Institutional Shareholder Services and Glass Lewis, citing people familiar with the matter. Reuters could not immediately confirm the potential executive order.

The industry official said the administration has been “kicking around” ideas for a few months on how to regulate or curb proxy voting and the proxy advisers.

Discussion about potential executive orders is purely speculation until they are officially announced, a White House official said.

Conservatives and some business leaders have for years aired a variety of complaints about proxy advisers and big fund managers, including that they often recommend votes or side against boardroom decisions or directors, and have put too much emphasis on climate and social issues. The advisers and fund firms say they only seek better returns for clients, but have taken a softer line at many corporate meetings in recent years.

Under U.S. President Donald Trump’s first administration, the Securities and Exchange Commission — urged on by corporate groups — took aim at proxy advisers, including by raising the bar for when shareholder resolutions may be submitted.

Glass Lewis and ISS, the two largest U.S. proxy advisory firms, have long drawn criticism for their influential voting recommendations, traditionally from corporate executives, but their guidance remains widely used by institutional investors.

In an emailed statement, an ISS spokesperson said the investment adviser is committed to fulfilling its fiduciary duties to clients and operating in a transparent and ethical manner.

“While we respect the Administration’s Executive Order prerogative, Glass Lewis believes this is more effectively handled through the constructive engagement of a regulatory process,” a spokesperson for the firm said.

Later on Wednesday, the Wall Street Journal reported, citing people familiar with the matter, that the U.S. Federal Trade Commission is investigating ISS and Glass Lewis for potential antitrust violations.

The probe, which is in early stages, is focused on the firms’ competitive practices and how they advise shareholders on climate and social-related governance proposals, the report added.

ISS and Glass Lewis did not immediately respond to Reuters’ requests for comment on the investigation, while a spokesperson for the FTC declined to comment.

Index-fund managers such as Vanguard, BlackRock and State Street, which manage big stakes of most large U.S. publicly traded companies, have also come under fire from the administration. All three firms have new systems in place to give their own investors more say on how shares are voted. 

BlackRock and State Street declined to comment. Vanguard did not respond to requests for comment.

(Reporting by Manya Saini and Ateev Bhandari in Bengaluru and Ross Kerber in Boston; Editing by Krishna Chandra Eluri, Michelle Price, Richard Chang and Alan Barona)