JPMorganChase’s asset management function is to end its use of proxy advisers in the US and instead turn to its own artificially intelligent solution, according to Reuters.

The news comes as a potentially significant moment in the ongoing debate about the role of proxies in the US.

Proxies such as Glass Lewis and ISS have faced sustained criticism for wielding ‘too much power’ over investor voting and stand accused of being overly focused on sustainability issues.

Reuters reports a JPMorgan memo saying it will turn to a new in-house tool called Proxy IQ, said to draw on data from more than 3,000 AGMs.

One of the big two proxy advisers, ISS, told Reuters: “We are proud of our four-decade record serving the global institutional investor community with independent and high quality governance research, recommendations and voting solutions and will continue to do so.”

Through most of last year, the financial services committee of the US House of Representatives staged hearings under the title “Exposing the proxy advisory cartel: how ISS and Glass Lewis influence markets.”

The hearings stemmed from a belief among many Republican policymakers that the two firms exert too much power over AGM voting.

‘Robovoting’

One piece of evidence to the committee, from Case Western professor Paul Rose, accused investors of “robovoting” and “mechanically following proxy advisers’ recommendations without independent analysis”.

Rose called for new rules so proxies must disclose conflicts of interest and submit voting advice to company boards for review and response.

On LinkedIn this week, the advisory industry was quick to point out that JPMorgan’s decision was “inevitable”. Damindu Jayaweera, head of technology research at law firm Peel Hunt, writes that the proxy adviser system caused “voting by autopilot”. He adds: “These are not independent decisions, just proxy adviser views repeated at scale.”

However, the hearings also saw a defence of proxies. In a letter to the committee, Jen Sisson, chief executive of the International Corporate Governance Network, argued criticism of proxies were based on “misconceptions” about their influence.

She said there may be “correlation” between advice and voting but “this correlation should not be confused with causation.

“If there is a causal link, it is rather that proxy advisers have been asked by their clients to flag certain issues through their vote recommendations.”

Elsewhere, Nell Minow, vice chair of ValueEdge, a shareholder advisory firm, denied proxy advisers amounted to a “cartel” and argued their influence was overplayed.

The news has triggered speculation that the deployment of AI could spell the end of proxy advice. However, David Crum, an adviser to the Local Government Pension Scheme, in aggregate a fund of more than £200m, points out that proxies remain strong on deep governance, market intelligence, peer benchmarking and “escalation insight”.

The real risk, he argues, is not AI replacing proxy advisers, but “Asset owners thinking AI removes the need for governance expertise.”

JPMorgan’s decision has made headlines around the world. In the coming months, the real issue will be whether there be larger implications for proxies and AGM voting.