A leading governance think tank has written to US lawmakers investigating proxy advisers, revealing concerns that its remit may not “create a helpful environment for an unbiased, factual and balanced conversation”.

The letter has been sent by the International Corporate Governance Network (ICGN) to the House of Representatives’ financial services committee, which is currently conducting hearings under the title: “Exposing the Proxy Advisory Cartel: How ISS and Glass Lewis Influence Markets.”

ICGN’s letter, signed by chief executive Jen Sisson, says there are “misconceptions” about the “influence” of proxies.

ICGN argues investors have their own voting policies that are implemented by proxies. Proxy benchmark policies—the ones largely worrying critics—are derived from consultation with fund managers, not the other way around.

“As a result,” ICGN writes, “the market may observe a correlation between the vote recommendations by proxy advisors and significant votes against management at company annual general meetings.

“This correlation should not be confused with causation. If there is a causal link, it is rather that proxy advisors have been asked by their clients to flag certain issues through their vote recommendations.”

The hearings stem from a belief among some US lawmakers that the two firms exert too much influence over institutional investors, and their AGM voting patterns, by directing votes according to their own agendas.

There is particular concern that ISS and Glass Lewis influence the way investors have pursued ESG issues.

‘Proxy advisors don’t vote’

Sisson adds: “It is important to remember that the investors remain the decision-makers. Proxy advisors don’t vote. Investors do.”

The letter comes in the same week the House committee continued its hearings with some witnesses arguing proxies should face tighter regulation, and others defending them.

Case Western Reserve University professor Paul Rose appeared before the committee after submitting a witness statement in which he argues investors are guilty of “robovoting”—“mechanically following proxy advisors’ recommendations without independent analysis”.

He says 2020 saw more than 100 institutional investors, managing assets worth $5trn, vote in “near-total alignment with ISS or Glass Lewis”.

Rose also argues proxy advisors are beset by conflicts of interest, because they sell governance consulting services to the companies they evaluate to provide voting advice aimed at investors.

Rose calls for new legislation which would require proxies to disclose conflicts of interest, and new rules that would ensure issuers (companies) can “review and respond” to proxy advice before shareholder meetings.

Proxies have their defenders at the hearings. Nell Minow, vice chair of ValueEdge, a shareholder engagement advisory firm, denies proxy advisers are a “cartel”, arguing they “compete vigorously” and their influence is overplayed.

Minow’s witness statement cites statistics that, in 2024, ISS recommended a vote with 96% of management proposals.

She adds that, in the same year, ISS recommended voting against 12% of management proposals at companies in the Russell 3000 index. Less than one per cent went the way ISS advised.

Minow also points out that proxy advisers advised voting against Elon Musk’s $56bn pay package at Tesla, but it still received more than 70% support by external shareholders.

Proxies are not paid advocates for any party and are not mandatory to use. Minow points out.

“The First Amendment requires us to be very careful about government restrictions on independently produced publication,” she writes.

“In this case, there is simply no evidence of any kind that there is anything improper in the way they do business.”

The House committee is considering legislation that would place restrictions on proxy advisors and increase the disclosures they will need to make. Many in the US markets anticipated proxies to be a target under Donald Trump’s second term in the White House.