Majority of retail investors back new regs on corporate advisory firms: Study

A majority of retail investors want companies to pursue profit-maximizing strategies over social priorities, and believe the arcane corporate advisory firms that back those measures should be regulated more strongly by the federal government, according to a study published on Tuesday.

The report – a joint project from wealth management firm Spectrem Group and J.W. Verret, a professor at George Mason University and a member of the Securities and Exchange Commission’s Investor Advisory Committee – comes as the agency weighs new oversight requirements on Glass Lewis and Institutional Shareholder Services.

Known as proxy advisers, the two firms provide voting advice to shareholders on everything from whether to support a merger or acquisition, to proposals offered up at annual investor meetings to force a board of directors to take certain actions.

Main Street investors believe additional government oversight of the industry is necessary – particularly after becoming more educated on the issue, according to Verret’s research.

“Retail investors view proxy voting as important, and those who are informed largely support the SEC increasing oversight or regulation of proxy advisory firms,” the report reads. “Currently, investors are concerned that a duopoly may be negatively impacting their financial returns, which is ultimately the chief objective above any political/social consideration.”

Ninety-one percent of the 5,159 respondents say they preferred wealth maximization over political or social objectives. To be sure, proxy advisers and other supporters argue that reports on matters like climate change or firearm safety are important from a financial standpoint given the outsized public attention on the issues.

Prior to receiving additional information on the firms, 64 percent “at least slightly” supported additional regulations on proxy advisers – though only 50 percent were initially aware of the proxy advisory industry prior to the survey. That jumped to 85 percent after respondents learned more about the sector, including the duopoly of Glass Lewis and ISS.

A Glass Lewis spokesperson did not respond to request for comment. In an emailed statement, ISS said it is proud of the role it plays "in assisting institutional investors as they, in turn, help Americans achieve their financial goals while mitigating portfolio risks.”

“Despite what this report suggests, Main Street investors are not being neglected by the investment companies they hire and the proxy advisory firms upon which those institutional investors rely for impartial advice,” said Lorraine Kelly, head of governance solutions at the firm.

Shareholder activism is becoming a commonly used tool by both conservative and liberal-aligned groups to coerce companies into embracing a certain policy.

But it's the support for some of those policies by ISS and Glass Lewis that is driving outsized criticism, particularly because large institutional investors like BlackRock-- which own large swaths of company stock -- often follow their voting advice. The New York City-based firm has also called on the SEC to make the proxy advisory system more transparent.

Both Glass Lewis and ISS, for example, backed a successful push by a group of activist nuns to get Smith & Wesson-parent American Outdoors Brands to release a study on how its products are associated with gun violence.

U.S. companies argue the social or environmentally aligned proposals go beyond the purview of the board, and opponents of proxy advisory firms routinely highlight the potential conflicts of interest and secrecy under which they operate.

And as optimism grows that the SEC will impose new regulations on the industry, corporate America is ramping up its advocacy work. The National Association of Manufacturers and the U.S. Chamber of Commerce launched a six-figure ad campaign in 2018 against proxy advisers.


Glass Lewis and ISS argue they protect shareholder interests by synthesizing a large amount of information to help investors make informed decisions and have a voice in corporate matters.

Among the changes the SEC is weighing is whether to raise the threshold to introduce a shareholder proposal from the current $2,000 minimum, a move that proxy advisers argue would further reduce the ability of retail investors to weigh in on the direction of a company.