The Department of Justice Antitrust Division withdrew a 1987 business review letter that had for nearly four decades shielded Institutional Shareholder Services from antitrust scrutiny, removing a key legal protection for the dominant proxy advisory firm, on Aug. 5.
ISS and its chief competitor Glass Lewis collectively control more than 90 percent of the proxy advisory market, which influences how institutional investors vote on corporate governance matters at virtually every major U.S. public company.
Business review letters issued by the Antitrust Division signal the department’s view that proposed business conduct does not raise antitrust concerns. Withdrawal of the letter signals that view may have changed, though it does not constitute an enforcement action.
The proxy advisory industry shapes decisions on executive compensation, board composition, mergers and environmental and social governance policies at public companies. Institutional investors managing trillions of dollars in retirement savings and mutual funds rely on ISS and Glass Lewis recommendations to inform their voting decisions.
The withdrawal does not automatically trigger an investigation but opens the door to potential antitrust scrutiny of a near-duopoly. Both conservative and progressive policymakers have raised concerns in recent years about the outsized influence of proxy advisory firms over corporate governance.
Critics of the industry argue that the concentration gives two firms disproportionate power over American corporate governance with insufficient accountability. Defenders say the firms provide essential research that helps institutional investors meet their fiduciary obligations.
The Antitrust Division’s move could be a precursor to a broader examination of competition in the proxy advisory market, with implications for how corporate America is governed.