The Scoop
For years, two firms have dominated the business of telling investors how to vote in corporate elections. One wants out.
Glass Lewis, the scrappier and smaller rival of Institutional Shareholder Services (ISS), is discussing a dramatic shift to essentially scrap its “house view” on ballot measures ranging from takeover battles to complaints about gender balance, political donations, and carbon emissions, according to people familiar with the matter and an internal memo seen by Semafor. The move is partly in response to heightened conservative backlash, they said.
Instead, Glass Lewis would help investors develop their own custom voting policies, handle the paperwork and regulatory reporting, and provide data and research. The changes would be phased in over a few years, and the firm would likely continue to make explicit recommendations in the meantime.
Glass Lewis has angered both corporate executives and conservative politicians by supporting, among others, ballot measures for McDonald’s to audit its racial diversity, Starbucks to produce an independent report on its labor practices, and meatpacker Tyson to disclose and defend its political contributions.
It also recommended that shareholders reject Jamie Dimon’s $53 million bonus in 2022, which earned it the unending ire, recently vented in an interview with Semafor, of the JPMorgan chief. (In a perfectly timed juxtaposition, ISS on Monday recommended that BlackRock shareholders vote down CEO Larry Fink’s $30 million-plus pay package.)
Its pivot reflects a growing desire among players across the financial industry to get out of the moralizing business and back into the business of managing and making money. The most visible backpedaling happened at investment giant BlackRock, which has retreated from its late 2010s progressive push under a hail of political arrows.
“Speak softly and invest money,” Mark Wiedman, then a top BlackRock’s executive told Semafor in 2023, about a year into the $11.6 trillion firm’s change of heart. BlackRock and Vanguard have both dialed back their requirements that public company boards include women and minority investors, and rolled out new options for investors to vote their own shares, rather than adopt BlackRock’s house view.
Other gatekeepers, like Goldman Sachs, a major IPO underwriter, and Nasdaq have scrapped similar requirements — the latter after a court order.
Glass Lewis’ own pivot comes a year into the tenure of its new CEO, Bob Mann, and amid an investigation by House Republicans into it and ISS. The two firms control an estimated 90% of the US shareholder-advice market, which critics say has allowed them to push an ideological agenda. Glass Lewis’ moves would go beyond those of ISS, which said in February that it would no longer consider the diversity of board members when making its recommendations.
A congressional hearing is set for Tuesday afternoon.
In this article:
Liz’s view
I’ve always found Republican claims of a vast left-wing conspiracy in investing a little silly. BlackRock, Glass Lewis, Goldman Sachs, and Nasdaq are commercial creatures, and they were responding to commercial pressures in the late 2010s and early 2020s.
The political winds were blowing left, so they went left. BlackRock was cajoled into joining a climate-change coalition by European and Japanese pension funds that threatened to pull their money if it didn’t. Not to say that Larry Fink didn’t believe in diversity, or see a chance to burnish his own standing by fronting a social movement. But as I wrote last summer, his leftward shift seemed “like a CEO tweaking his company’s product because some important customers stopped buying it.”
Now the customers want something else. Plus, designing and executing custom voting policies for clients is more profitable for Glass Lewis than having big ideas of its own, according to people familiar with the privately held company’s finances. Making more money while getting yelled at less is a good business model.
Rohan’s view
ESG handwringing aside, this will shake up the world of activist investing, where dissident hedge funds and companies lobby Glass Lewis hard to recommend their case to shareholders. Many institutional investors automatically vote their shares however their chosen proxy firm recommends, and every public missive and presentation from both sides is aimed at swaying the proxy advisors’ internal judges.
At one of the few active proxy fights of this season — a battle between activist Elliott Management and Phillips 66 — Elliott spent the day in Washington on Monday speaking with ISS, according to people familiar with the matter. Phillips is scheduled to meet with them Tuesday, according to other people with knowledge of the event.
Glass Lewis’ decision changes the game for these investors. Where there was once a duopoly, now ISS will have singular sway over huge swathes of the shareholder base. ISS may be willing to bear the political heat that comes with it.
Room for Disagreement
Deeply researched recommendations from proxy advisory firms are “essential,” Better Markets, the left-leaning Wall Street advocacy group, wrote this week. “Without these firms, investors would receive only management’s perspective on the key issues a company faces, and all too often management’s perspective favors management over the long-term interests of the company and its shareholders.”