by Andrew L. Oringer
After years of handwringing by those opposed to the influence of proxy-advisory firms, are the storm clouds over those firms about to release a torrent? The most recent bolt of lightning comes in the form of the December 11, 2025, Executive Order captioned, “Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors” (the “Executive Order”).
Before the Enron/WorldCom debacles, the process by which executive-compensation packages were approved seemed often to involve an exercise whereby advisors would look to validate proposed packages. A common path was to hire a consultant who, after reviewing comparables, would express support for the proposal du jour.
The tides palpably shifted after Enron/WorldCom on political, social, advisory and press-related fronts, with executives and executive pay quickly flying into the crosshairs of growing anti-executive sentiment. The “TARP” (Troubled Asset Relief Program) bail-out legislation would arguably not have passed without tough executive-pay provisions, and follow-on legislative and regulatory initiatives, notably including the Dodd-Frank legislation and the regulations thereunder, subsequently emerged.
As compensation consultants began to take a more adversarial tack when it came to advising Boards and Compensation Committees about the propriety of proposed pay packages, the phenomenon of proxy-advisory services coalesced. These are advisors that generally advise shareholders regarding whether or not pay packages, board candidates and other proposals on the proxy ballot should be approved.
In part because there were (and are) only a handful of these advisors, they started to take on a quasi-governmental regulatory feel. Many issuers and advisors began to structure their compensation agreements, plans and packages so that they would get the seal of approval from proxy-advisory firms, whether or not the issuers and their advisors agreed with the underlying substantive positions that informed the firms’ approaches. This process evolved into an effort to figure out just how the applicable provisions would fit into the firms’ analytical matrices and scoring checklists. In many cases, structures and specifics that might be considered desirable but that were perceived as likely to run afoul of the firms’ often inflexible standards would never even get out of the gate. Indeed, some firms began selling products designed to help issuers and their advisors navigate the gauntlet to an affirmative recommendation.
Someone, however, by definition, has to be at the top of the food chain. If every single executive finding him- or herself as the most highly paid person were to be considered too highly paid, then no one could ever be the most highly paid, which, unless everyone is paid the same, is simply not possible. It often seemed to some that the proxy advisors’ wooden adherence to matrices and checklists failed to recognize that one size does not fit all.
To be sure, some issuers fought back and proceeded in the face of negative recommendations, occasionally with success. But it could be a combative, embarrassing and ugly process, and one not necessarily guaranteed to result in shareholder approval even in the case of successful issuers otherwise generally supported by their shareholders.
Eventually, the pendulum, as it so often does, started to swing. People increasingly questioned why, even conceding that some issuers might be unduly aggressive, it should necessarily be that a handful of self-appointed guardians of the compensation galaxy were effectively setting national compensation policy.
During the first Trump administration, the SEC began looking at these matters, and eventually started taking aim at proxy-advisory firms. Commentators, as they’re prone to do, starting wondering if: now – a ha! – the influence of proxy-advisory firms might finally be on the wane. But sea changes tend to take time, and, here, putting aside the question of whether the pendulum had truly started to swing, the anti-advisor tides ebbed significantly with the Biden election.
Now, however, it appears that the pendulum has swung yet again, maybe powerfully so. There may be a convergence of at least four factors that could bode poorly for proxy-advisory firms. First, as noted, there was the Trump reelection. Then, there is the ramping up of controversy and criticism, even amongst those not focused on executive compensation, of proxy advisors firms that have made their way towards matters relating to diversity, equity and inclusion (“DEI”) and environmental, social and governance (“ESG”), which feeds into this Republican administration’s distaste for proxy-advisory firms (in this regard, note the reference to “politically-motivated” advisors in the Executive Order). In addition, these federal factors are evolving against the backdrop of the extremely high-profile approval of the Musk compensation package over the clear objection and no-vote recommendation of the principal proxy-advisory firms.[1] And now, we have the Executive Order taking direct aim at proxy advisors.
The Executive Order begins by bemoaning the “enormous influence” that proxy advisors:
wield . . . over corporate governance matters, including shareholder proposals, board composition, and executive compensation, as well as capital markets and the value of Americans’ investments more generally, including 401(k)s, IRAs, and other retirement investment vehicles. These proxy advisors regularly use their substantial power to advance and prioritize radical politically-motivated agendas – like “diversity, equity, and inclusion” and “environmental, social, and governance” – even though investor returns should be the only priority. . . . Their practices . . . raise significant concerns about conflicts of interest and the quality of their recommendations, among other concerns. The United States must therefore increase oversight of and take action to restore public confidence in the proxy advisor industry, including by promoting accountability, transparency, and competition.
The Executive Order then embarks on a multi-front attack on proxy advisors. The initiative involves the Securities and Exchange Commission (the “SEC”), the Federal Trade Commission (the “FTC”), the Attorney General and the Department of Labor (the “DOL”).
The Executive Order directs the SEC to (i) review its guidance relating to proxy advisors and shareholder proposals for possible revision or rescission, (ii) enforce anti-fraud rules in this context and assess whether SEC registration is required, (iii) consider the need for increased transparency regarding recommendations, methodology and conflicts of interest, (iv) analyze whether “a proxy advisor serves as a vehicle for investment advisers to coordinate and augment their voting decisions with respect to a company’s securities and . . . [thereby] form a group for purposes of” the federal securities laws, and (iv) examine whether the retention by registered investment advisers (“RIAs”) of proxy advisors regarding non-pecuniary factors in investing may be inconsistent with the RIAs’ fiduciary duties.
The FTC, in consultation with the Attorney General, is generally directed to (i) review ongoing antitrust investigations at the state level into proxy advisors and determine if there is a probable link between conduct underlying those investigations and violations of federal antitrust law and (ii) investigate the possibility of unfair methods of competition and unfair or deceptive acts or practices on the part of proxy advisors by (A) conspiring or colluding to diminish the value of consumer investments, (B) failing adequately to disclose conflicts of interest, (C) providing misleading or inaccurate information, (D) undermining the ability of consumers to make informed choices, or (E) otherwise engaging in federal antitrust violations.
The DOL is generally directed to revise its fiduciary guidance under the Employee Retirement Income Security Act of 1974 (“ERISA”) consistently with the Executive Order. The DOL is expressly directed to consider whether any proposed revisions should include amendments to specify that any individual who has a relationship of trust and confidence with the individual’s client, including any proxy advisor, or who provides advice for a fee or other compensation with respect to the exercise of the rights appurtenant to shares held by ERISA plans, is an ERISA fiduciary. The DOL is also generally directed to (i) strengthen the fiduciary standards of pension and retirement plans covered under ERISA, including by assessing whether (A) proxy advisors act solely in the financial interests of plan participants and any of their practices undermine the pecuniary value of the assets of ERISA plan, and (ii) enhance transparency concerning the use of proxy advisors, particularly regarding DEI and ESG investment practices. It is noted that the provisions relating to retirement investors, who are mentioned in both the FTC and the DOL sections of the Executive Order, take on great significance given the staggering level of assets in retirement plans (including ERISA plans (which generally are plans maintained by U.S. corporate (and other similar) employers) and public plans (which are not ordinarily subject to ERISA)).
One might surmise that the Trump administration’s pursuit of proxy-advisory firms will be the subject of contentious litigation. After all, these efforts could pose an existential threat to those firms. Ironically, one hurdle the Trump administration might face is the recent Supreme Court case of Loper Bright Enterprises v. Raimondo.[2] Loper Bright, which might well be welcomed by the administration in other contexts, essentially eliminated the deference to federal agencies regarding statutory interpretation that had generally been required (under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.[3]) by the Court. However, even assuming that the actions to be taken in furtherance of the Executive Order might face difficult litigation, the mere existence of the Executive Order and the regulatory activity it directs could well be problematic for proxy advisors and their business even before the eventual fate of any regulatory activity is finally known.
Will things come together in a way that truly diminishes the arguable stranglehold that proxy-advisory firms have had on the executive-compensation practice? Will the recent trending away of being beholden to the firms’ matrices and checklists turn into a deeper and more comprehensive rejection of their influence? Is this the tipping point so hoped for by those who decry the influence of proxy-advisory firms? Maybe. While the Musk approval may have sounded an alarm bell for proxy-advisory firms, the Executive Order may be of more direct concern.
Be careful for what you wish was a message of W.W. Jacobs’ The Monkey’s Paw and, in the case of proxy advisors, their wide-ranging success may well have led to a backlash that ultimately could undermine their entire business model. Time will tell and, possibly sooner rather than later, we shall see.
We at The Wagner Law Group stand ready to advise regarding the Executive Order and about any other matters relating to executive compensation in the context of both public and private companies.
[1] The Musk approval was a high-profile slap in the face of the proxy-advisory firms. The no-vote recommendation was clear, on a package that followed rejection by the Delaware courts and that has a potential payout, if all hurdles and other conditions are met, of a trillion dollars. Indeed, there are indications that the issuer’s move of its domicile to Texas could be a harbinger of things to come in terms of Delaware’s effective near-monopoly on business domicile. See, e.g., A. Oringer, “Texas Targets Del. Primacy With Trio Of New Corporate Laws,” Law360 (June 17, 2025).
[2] 603 U.S. 369 (2024).
[3] 467 U.S. 837 (1984).
