Elon Musk, founder of Tesla and owner of Twitter, has this week turned his ire on the world’s largest proxy advisers, accusing them of having excessive influence over the markets.
In a tweet posted late on Monday, Musk joined the increasingly polarised debate over who has influence in US corporates markets, writing: “Far too much power is concentrated in the hands of ‘shareholder services’ companies like ISS and Glass Lewis, because so much of the market is passive/index funds, which outsource shareholder voting decisions to them.
“ISS and Glass Lewis effectively control the stock market.”
He was responding to Vivek Ramaswamy, an anti-ESG investment manager who has built a media profile through frequent appearances on Fox News to criticise ESG investing, as well authoring a book, Woke Inc, on the subject.
Musk’s intervention is the latest high profile attempt to attack ISS and Glass Lewis, a battlefront in the increasingly heated political conflict over ESG principles.
Last week it emerged the attorneys general of 21 Republican-controlled states had written to both proxy advisers, demanding “written assurance” that they had breached contractual obligations to state investment vehicles by making commitments elsewhere. These commitments, or “violations” as the letter puts it, include “advocating for and acting in alignment with climate change goals”, advocating for “diversity, equity and inclusion”.
Indiana and Montana are considering laws to ban their state pension funds from following advice based on ESG criteria.
Musk has increasingly used his Twitter platform to target those he opposes. Last week, he slammed Richard Edelman, founder and head of Edelman, the world’s largest PR company, after he suggested in Davos that advertisers on social media platforms should “pull” their spending from companies that “spread disinformation”. Musk responded by tweeting that Edelman was a “despicable human being”.
Potus position
During Donald Trump’s presidency, there had been new rules attempting to constrain proxy advisers. One mandated proxies providing their voting advice to companies as well as investors. The other forced responses from companies to be provided to proxy clients. Both have since been rescinded under President Biden “to avoid burdens” on proxy companies “that may impair the timeliness and independence of their advice”.
Proxy advisers are not the only market players to feel the anger of anti-ESG campaigners. Larry Fink, chief executive of BlackRock, the world’s largest investment manager, defended his firm’s position last year after it came under attack from another letter sent by Republican states. The note claimed BlackRock was “engaged in the purpose of activism” and was far from “neutral” on the issue of energy and climate.
BlackRock responded by saying it was “focused on enhancing transparency” and does not “dictate specific emissions targets”.
The row over ESG and the role of key US institutions in pursuing a climate agenda is now fully entrenched in a highly polarised political arena. It remains to be seen whether the attack will undermine the governance status quo. From Europe, it all looks like a US problem. But boards should expect more of the same in the future.