Senate Banking Committee Chairman Tim Scott, alongside colleagues Mike Rounds and Bill Hagerty, have raised concerns about the influence of proxy advisors on U.S. public companies' corporate governance. In a letter addressed to Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co., the Republican senators criticized the lack of transparency and accountability from these firms, which they argue significantly affect U.S. public policy on various economic, environmental, and social issues.
The letter calls for information to understand how these firms develop recommendations and handle potential conflicts of interest. The senators are particularly concerned about recommendations that appear ideologically driven rather than based on economic analysis.
"Public admissions from your leadership – in congressional testimony and in appearance before national media – reveal that your firms routinely issue vote recommendations, particularly on environmental, social, and political proposals, without any underlying economic analysis," the letter states.
The dual role of ISS as both a proxy advisor and governance consultant is highlighted as a conflict of interest. "ISS’s dual role as both a proxy advisor and a governance consultant presents inherent conflicts of interest," they noted.
Foreign ownership is another concern raised by the senators. They point out that ISS is largely owned by Deutsche Börse with an emphasis on ESG initiatives while Glass Lewis is owned by Peloton Capital Management with similar priorities.
The senators also critique what they describe as a lack of transparency in voting recommendations: "A review of the ISS Voting Analytics platform suggests partisan patterns in ISS’s recommendation history."
Finally, practices such as board diversity mandates applied uniformly across companies are questioned: "For years, ISS and Glass Lewis have applied one-size-fits-all board diversity mandates."
To access the full letter sent by the senators to these firms' leaders, further details are available online.
