Justice Department to Withdraw 1987 Antitrust Guidance on Proxy Advisors

The U.S. Department of Justice intends to withdraw a 1987 guidance letter concerning shareholder proxy advisors, a move that signals a significant shift in the regulatory view of the industry amid rising antitrust concerns. The decision removes a long-standing opinion that had cleared a major firm's business model of competition issues, according to a DOJ official.

A Decades-Old Protection Rescinded

The DOJ will formally rescind a letter sent to Institutional Shareholder Services (ISS) in 1987. That original communication informed the firm that its business model, which involves advising institutional investors on corporate governance and shareholder votes, did not appear to raise antitrust concerns at the time.

Proxy advisory firms play a crucial role in corporate governance by providing recommendations to mutual funds and other large investors on how to vote in corporate elections. The industry is highly concentrated, with ISS and its main competitor, Glass, Lewis & Co., holding significant market influence.

Political and Regulatory Context

This action follows a request from President Donald Trump for an antitrust investigation into the two dominant proxy advisory firms. The firms have faced criticism from conservative groups and Republican leaders for their substantial influence over shareholder votes.

Ad

Critics have particularly focused on the advisors' support for environmental, social, and governance (ESG) proposals, arguing that their recommendations can sway the outcomes of corporate decisions. The withdrawal of the 1987 guidance suggests the DOJ may now be more receptive to these antitrust arguments.

What This Means for Investors

While withdrawing the guidance does not constitute legal action, it removes a layer of regulatory assurance for the proxy advisory industry. The move indicates a more skeptical stance from the DOJ and could pave the way for a formal antitrust investigation into the firms' market power and practices.

For institutional investors, this development introduces a new level of uncertainty. The increased regulatory pressure on their primary advisors could influence the nature of the recommendations they receive, particularly on contentious ESG issues, and may lead to changes in how the proxy advisory industry operates.