SEC Asks Court to Force Proxy Advisor ISS to Disclose Client Voting Data

The U.S. Securities and Exchange Commission (SEC) has asked a federal court to enforce a subpoena against Institutional Shareholder Services (ISS), a leading proxy advisory firm, to obtain detailed records of its clients' voting decisions. The move escalates a regulatory investigation into whether the firm's advice is influenced by outside objectives at the expense of its clients' best interests.

SEC Seeks to Enforce Investigation

According to a Saturday report from Bloomberg, the SEC's court filing states that ISS has not fully complied with an administrative subpoena issued as part of an investigation launched in March. The regulator is probing whether ISS is adhering to securities laws, including its fiduciary obligation to provide impartial advice.

The SEC is demanding four years of records, which include documents identifying ISS clients and specific information about their voting decisions on corporate matters. The agency stated that examining this data is essential to determine if proxy-voting advice is being unduly influenced by political or policy goals.

ISS Challenges on First Amendment Grounds

In response, ISS has challenged the scope of the SEC's request, arguing it infringes on First Amendment rights. The firm, a subsidiary of Deutsche Boerse (ETR:DB1Gn), claims it is cooperating with the regulator but objects to handing over confidential client information.

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ISS contends that its clients provide voting information with the expectation of confidentiality. The firm argued that disclosing the data could expose both ISS and its institutional investor clients to potential retaliation over their voting decisions, which it considers a form of protected speech.

Context: Increased Scrutiny on Proxy Advisors

The dispute highlights growing regulatory scrutiny of the proxy advisory industry, whose recommendations significantly influence how large investors vote on shareholder proposals and corporate governance issues. This investigation follows a December executive order from former President Donald Trump that directed the SEC to examine the role of firms like ISS and Glass Lewis, particularly regarding their guidance on Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) policies.

The outcome of this legal challenge could have significant implications for the level of regulatory oversight faced by proxy advisors and how they factor non-financial considerations into their voting recommendations for institutional clients.