Heightened Scrutiny on Shareholder Activism and Corporate Governance: ESG BROADCAST shares key takeaways.
President Donald J. Trump signed an Executive Order on December 11, 2025, titled “Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors,” immediately signaling a major shift in the direction of US corporate oversight. The order criticizes the influence of the two major foreign-owned proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis, which collectively dominate over 90 percent of the US market. The administration contends these firms frequently use their substantial power to prioritize politically-motivated agendas, specifically naming ESG (environmental, social, and governance) and DEI (diversity, equity, and inclusion) themes, over the pecuniary interests of American investors and retirement accounts. This action initiates a top-down federal review aimed at promoting accountability, transparency, and competition within the industry.
The Executive Order directs three principal federal agencies to undertake immediate reviews and consider new rulemaking to enforce a stricter framework of Proxy Advisor Regulation. The Securities and Exchange Commission (SEC) is tasked with reviewing all existing rules, regulations, and guidance related to proxy advisors and shareholder proposals, including Rule 14a-8. Specifically, the SEC must consider revising or rescinding provisions found inconsistent with the Order’s purpose, especially those involving DEI and ESG priorities. Furthermore, the SEC is directed to evaluate whether proxy advisors should register as investment advisers and whether their recommendations concerning non-pecuniary factors align with the fiduciary duties of Registered Investment Advisers.
Simultaneously, the Federal Trade Commission (FTC), in coordination with the Attorney General, received instructions to investigate potential unfair competition and anti-trust violations within the proxy advisor industry. This includes determining whether the firms engage in collusive or deceptive practices that may harm US consumers or diminish the value of retirement savings. The FTC review aims to uncover any potential failure to adequately disclose conflicts of interest or the provision of misleading information. This concurrent focus by the FTC alongside the SEC highlights the multi-faceted regulatory pressure being brought to bear on the entire proxy ecosystem.
The third body, the Department of Labor (DoL), must review and potentially revise regulations under the Employee Retirement Income Security Act of 1974 (ERISA). The DoL’s primary focus is strengthening fiduciary standards for pension and retirement plans, ensuring that all proxy voting and corporate engagement decisions are based solely on the financial interests of plan participants and beneficiaries. This part of the Order scrutinizes the extent to which proxy advisors, and those who rely on them, use non-pecuniary factors—such as ESG—when advising on ERISA-covered assets, re-emphasizing the administration’s focus on financial returns.
It is important to note the Executive Order does not instantly modify existing rules but rather directs the relevant agencies to begin a process of review and potential rulemaking. Therefore, the applicability of specific new rules and their effective dates will be determined only after the SEC, FTC, and DoL conduct their respective reviews and propose changes through the Administrative Procedure Act process. However, the order immediately establishes a tougher, new regulatory posture for the future of Proxy Advisor Regulation, prompting issuers and asset managers to prepare for increased regulatory enforcement and scrutiny in the 2026 proxy season and beyond.
Strategic significance lies in the immediate politicization and potential re-financialization of proxy voting standards in the United States. This action introduces a strong top-down counter-weight to the previous momentum of ESG-focused shareholder proposals, compelling fiduciaries across all sectors to reassess the integration of non-pecuniary factors into their voting and investment policies. Companies can anticipate a more opaque voting environment with increased divergence in institutional investor behavior, placing a premium on direct, clear communication with their shareholders regarding governance and financial strategy. The future trajectory of US ESG incorporation hinges heavily on the final rules that emerge from these agency reviews.
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