A leading UK shareholder engagement specialist has accused the US of instigating new rules for proxy advisers that constitute a “a rejection of democratic accountability”.

Sarah Wilson, chief executive of shareholder advisory firm Minerva, argues in the Financial Times that moves to impose new rules on proxy advisers “misrepresent” their work.

Wilson writes: “These are not neutral regulatory improvements. They are efforts to shift power from shareholders to corporate management, insulating boards from scrutiny and muting dissent.”

At issue, among other developments, are rules signed into law in Texas that impose new disclosure rules on proxies for any advice on companies registered in the state that involves voting advice based on non-financial factors.

Disclosures would have to be made to managers of any company that is the subject of advice that is “not being solely provided in the financial interest of the company’s shareholders”.

Wilson draws a distinction between the US approach to proxies and that in Europe, where a 2023 report had already concluded that the investment manager and proxy market was “doing its job”.

‘Not an ideology’

Wilson writes: “The EU and UK both recognise what seems to be ignored in Washington—proxy research is commissioned by sophisticated capital providers to address the issues that they want to know about, not an ideology that is imposed upon them.”

However, Texas is not the only player in the drive to regulate proxies. At the beginning of June, Mark Uyeda, commissioner of the US Securities and Exchange Commission (SEC), said there was “reason to be concerned” about the impact of proxy advisers and that further rule-making might be on the way.

Earlier this year, the SEC also killed off any attempt to push ahead with new mandatory climate risk reporting rules that were launched during Joe Biden’s time as president and would have closely mirrored reporting frameworks issued by the Taskforce for Climate-related Financial Disclosures and the International Sustainability Standards Board.

In April, the US Chamber of Commerce called on the SEC to reinstate rules that were begun during Donald Trump’s first administration, but then suspended in 2021. The rules would have forced proxies to provide boards with an opportunity to review and respond to draft voting advice.

‘Robust oversight’

In an open letter to the SEC, the Chamber wrote that the watchdog should “prioritise re-implementing robust oversight and regulation of the proxy advisory industry”.

Congress has been holding hearings too on proxy advisers under the title ‘Exposing the Proxy Advisory Cartel: How ISS and Glass Lewis Influence Markets’.

A submission to the committee holding the hearings from the International Corporate Governance Network, among others, pushed back at “misconceptions” about the influence of proxies. “It is important to remember that the investors remain the decision-maker. Proxy advisors don’t vote. Investors do,” the submission said.

Wilson concludes her FT article by challenging US boards and regulators to explain why company managers should be “so afraid of their owners” that they need rules for proxy advisers.

“Overall,” Wilson argues, “this assault on proxy agencies is a test of whether liberal capitalist democracies still believe in the right of asset owners to govern the capital they provide.”

Current US political leaders do not believe non-financial factors such as climate and diversity are legitimate consideration in investment decision-making. As such, the business world can expect the current move against them to continue.