The News
Jamie Dimon sharply criticized the top two proxy advisory firms, the little-known apparatuses that have become the target of business ire over their outsize influence and perceived political agendas.
The JPMorgan chief described Institutional Shareholder Services and Glass Lewis as “incompetent” in an interview with Semafor on stage at BlackRock’s retirement summit in Washington Wednesday. He said ISS and its smaller rivals have contributed to a regulatory environment that is “driving companies out of the public market.”
The rising influence of ISS and its rivals to harness shareholder votes toward outcomes executives don’t like isn’t the only reason that the number of US public companies has fallen from 7,000 in 1996 to less than 4,000 by 2020, but it has contributed. That decline started after the Sarbanes Oxley securities law overhaul in 2003 and was accelerated by giant pools of venture and private equity funds amassed in the wake of the 2008 crisis.
Dimon framed the issue as one of American principles: ISS, the largest of the proxy advisers, is owned by Germany’s Deutsche Borse, and smaller rival Glass Lewis is owned by a Canadian private equity firm.
“Anyone who gives them money — shame on you,” Dimon said. The firms “should be gone and dead and done with.”
Either Glass Lewis, ISS, or both have at least four times since 2013 recommended that shareholders either lodge protest votes against Dimon’s pay or, more meaningfully, strip him of his dual role as chairman of JPMorgan’s board. Shareholders sided with Dimon each time except a nonbinding vote on his special one-time $53 million bonus in 2022.
Know More
Little known to the general public, both ISS and Glass Lewis help investors decide how to vote at shareholder meetings by parsing through voluminous filings and interviewing corporate boards and managers about key decisions like pay, takeovers, and social stances.
But they’ve come under criticism from conservative politicians and some business leaders, who believe they have pushed progressive agendas of environmental protection and diversity through their recommendations.
Elon Musk compared ISS to ISIS on an earnings call, after it recommended shareholders vote against his $56 billion pay package in 2024 — which won handily anyway. (The resulting investors lawsuit, in which a Delaware judge invalidated the award, sparked Musk to move Tesla out of the state and prompted a mild panic about the future of Delaware incorporations.)
Step Back
ISS and Glass Lewis get their power from a government quirk. In 1988, a Department of Labor ruling essentially allowed corporate pension plans, many of which lacked the resources to research thousands of annual ballot measures, to outsource their votes to professional firms.
Four decades later, support from ISS and Glass Lewis is now a must-win for any activist, corporate raider or board. It’s given a handful of deciders at those shops micro-celebrity status, but it has also made them targets in recent years, when their recommendations sometimes ran against an ascendant conservative movement.
Both Glass and ISS have joined the corporate retreat from DEI. In separate decisions just days apart, both said they would pause or reconsider guidelines that had encouraged boards to include diverse directors or else risk losing proxy advisor support.
Rohan’s view
Forces are aligning against the proxy advisory firms. They’ve made a powerful enemy out of Musk, and gain their power from the kind of agency regulations he is actively dismantling. Dimon and Musk have famously feuded in the past, but their politics have converged somewhat around Trump — for whom Dimon also expressed respect well before the election.
But surprising, too, is corporate America’s dissatisfaction with the proxy advisors — which, according to FTI Consulting data, sided with management over activist investors 61% of the time going back to 2019. As we’ve written before, the typical hall monitors — stock exchanges, regulators, advisors, underwriters — are finding themselves at the mercy of the monitored.
Room for Disagreement
Absent wholesale change in Department of Labor policy — not out of the question in Washington today — ISS and Glass Lewis will continue to exist and keep at least some power because they serve a real need. Smaller investment firms simply don’t have the resources or expertise to cast thousands of ballots. They are stock pickers, not experts in the virtues of lobbying disclosures or whether a CEO’s bonus exactly aligns with their peers’. Few activism defense bankers — not even those at JPMorgan — would advise clients to dismiss ISS as “incompetent,” either.
The View From ISS
“Our clients, as sophisticated institutional investors, are the best judge of the value and quality of our work,” an ISS spokesperson said in a statement to Semafor.
“Now, as ever, investors deeply value objective and independent research, data, and analysis free from undue interference from company management. We remain laser-focused on doing what’s best for our clients and the institutional investor community more broadly.”