The 2026 Proxy Advisor Executive Order would require proxy advisors like ISS and Glass Lewis to register as investment advisers and disclose conflicts of interest, increasing operational compliance and transparency for asset owners who rely on voting recommendations.
The proposed executive order targeting proxy advisors would require firms like Institutional Shareholder Services (ISS) and Glass Lewis to register as investment advisers under the Investment Advisers Act, disclose material conflicts of interest, and establish policies addressing fiduciary duties and client communications. This regulatory shift reflects mounting pressure from institutional asset owners, corporate governance reformers, and policymakers who argue that proxy advisors wield concentrated influence without proportionate accountability.
What is a proxy advisor and why do they matter to institutional investors?
Proxy advisors are intermediaries that analyze corporate governance proposals, executive compensation structures, and shareholder resolutions, then issue voting recommendations to their institutional clients. Institutions ranging from the California State Teachers' Retirement System (CalSTRS)—which manages USD 313 billion in assets—to smaller regional pension funds rely on these recommendations to cast votes at annual meetings across their equity portfolios.
The concentration of influence is substantial. According to data cited in SEC Staff reports, ISS and Glass Lewis collectively advise clients holding roughly 50% of votes cast at U.S. public company annual meetings. This concentration creates what governance scholars term a "gating function": proxy advisors effectively filter which shareholder proposals gain institutional support and which do not.
For long-term allocators pursuing stewardship and engagement strategies, proxy advisors serve a dual role. They reduce the information burden of analyzing thousands of voting items annually, but they also create principal-agent risks: clients depend on advisor recommendations without always knowing the full methodology, potential conflicts, or whether those recommendations align with portfolio-specific stewardship objectives.
How does the current proxy advisor regulatory framework operate?
Today, proxy advisors are not regulated as investment advisers. They are largely classified as research firms or service providers. This classification means they are exempt from SEC oversight, fiduciary standards, and the disclosure requirements that registered advisers must meet on Form ADV.
The SEC has expressed concern about this gap. In Staff reports published in 2014 and reiterated in subsequent guidance, the agency noted that proxy advisors lack consistent disclosure of:
- Methodologies underpinning voting recommendations
- Potential conflicts of interest (for example, if an advisor also provides consulting services to the corporations whose proxies they analyze)
- Quality control procedures
- How they address client feedback or disagreements with their recommendations
Some institutional investors, particularly larger asset owners like ABP (the Netherlands' largest pension fund with EUR 600 billion in AUM), have pushed for greater transparency. ABP has publicly stated that it evaluates proxy advisor recommendations against its own governance frameworks and maintains the right to vote contrary to advisor guidance when stewardship principles diverge.
However, smaller pension funds and asset managers often lack the internal research capacity to independently verify proxy advisor analysis. This structural imbalance—where advisory influence is highest among institutions least equipped to scrutinize it—animated much of the criticism driving the proposed order.
What would registration as an investment adviser require?
Registration under the Investment Advisers Act would impose several obligations on proxy advisors:
Fiduciary duty: Advisers must act in the best interest of their clients. This extends beyond simply providing analysis; it requires advisers to disclose conflicts and manage them transparently. A proxy advisor with both voting recommendation and corporate consulting revenue streams would need to explicitly address how these dual roles are managed.
Form ADV disclosure: Advisers must file detailed registration statements disclosing their business structure, fee arrangements, disciplinary history, conflicts of interest, and information security practices. This information is publicly available and allows clients and regulators to assess the advisor's governance and risk management.
Examination authority: The SEC and state regulators gain the power to conduct periodic examinations of proxy advisor compliance, policies, and procedures. This introduces external accountability currently absent from the proxy advisor market.
Client communications standards: Advisers must provide clients with clear explanations of their investment strategy, methodology, and performance. For proxy advisors, this could mean disclosing the specific criteria and weightings used to evaluate governance proposals.
Custody and fee safeguards: While proxy advisors do not hold client assets, registration triggers certain operational standards around fee disclosures and business conduct.
These requirements are standard for registered investment advisers managing client portfolios. The order would extend them to proxy advisors, treating voting recommendations as a form of investment advice subject to the same oversight framework.
Which proxy advisors would be most affected?
ISS and Glass Lewis, as the two dominant firms, face the most immediate regulatory exposure and compliance cost. Both firms already have substantial compliance infrastructure, existing relationships with the SEC through other advisory activities, and client bases sophisticated enough to navigate transition requirements.
ISS, part of the Equifax conglomerate, manages voting recommendations for clients holding over 25% of U.S. public market capitalization (according to company filings and investor presentations). Glass Lewis, owned by investment firm Ontario Teachers' Pension Plan and News Corp's Ithaca Holdings, advises on approximately 20–25% of U.S. votes cast. Both firms already operate registered advisory arms in other jurisdictions or business lines, so incremental registration costs may be manageable.
Smaller regional proxy advisors—Egan-Jones, Proxy Governance, and specialized governance boutiques—would face proportionally higher compliance burdens relative to their fee revenue. Some may consolidate or exit the market entirely. This could inadvertently strengthen the market position of the largest incumbents, a dynamic that neither regulators nor asset owners universally welcome.
What conflicts of interest would require disclosure?
The order specifically calls for disclosure of conflicts between proxy advisory activities and other business lines. Current examples include:
Consulting relationships with corporations: Some proxy advisors also provide governance consulting to the same companies they analyze. A client receiving a recommendation to oppose a director or executive compensation plan might not realize the advisor simultaneously earns fees from that corporation's board for governance advisory work.
Relationships with asset managers and asset owners: A proxy advisor might be owned by or have revenue-sharing arrangements with large asset managers. ISS and Glass Lewis both serve major institutional clients whose corporate parents or affiliates are themselves analyzed in voting recommendations.
Methodology licensing and data sales: Some advisors monetize their analytical frameworks or governance data by licensing insights to corporations, creating incentives to generate recommendations that are commercially attractive beyond pure fiduciary merit.
SEC comment letters and regulatory advocacy: Disclosure would illuminate whether proxy advisors' regulatory positions are influenced by their fee relationships with institutional or corporate clients.
Under registration, advisers would be required to disclose these relationships prominently to clients and explain how they manage the conflicts. A client could then decide whether the advisor's recommendations align with their own stewardship objectives or whether an alternative advisor's independence better serves their interests.
How would the order affect long-term allocators and stewardship strategies?
For institutions pursuing disciplined stewardship and engagement strategies, the order's impact is mixed.
Enhanced transparency: Better disclosure of conflicts and methodologies allows CIOs to make informed decisions about which advisors to retain and on what terms. A pension fund pursuing long-term value creation could more easily identify whether an advisor's recommendations align with sustainable governance practices or whether independent research would better serve the fund's fiduciary duty.
Increased costs: Registration and compliance would likely increase proxy advisor fees by 10–30%, depending on the advisor's existing infrastructure. These costs would ultimately be borne by asset owners in higher advisory fees. Smaller institutions might shift away from proxy advice toward simplified voting policies (such as voting with management or abstaining), reducing engagement overall.
Potential for differentiation: Enhanced competition around conflict management and methodology transparency could reward advisors offering more customized recommendations tailored to specific client values. Larger institutions like CalSTRS, with substantial in-house governance expertise, might negotiate tailored advisory arrangements. Smaller funds might consolidate around a single "best-practice" advisor.
Regulatory consistency with asset owner expectations: Large institutional investors already operate under fiduciary standards and SEC examination. Extending these standards to their voting advisors closes a governance gap that many asset owners have identified as problematic.
What is the timeline for implementation and what should institutions prepare for?
The executive order targets 2026 as a regulatory milestone, but the actual timeline depends on several factors:
- Executive order issuance and SEC rulemaking: The SEC would issue a proposed rule, open a public comment period (typically 60–90 days), and publish a final rule. Historical precedent suggests 12–18 months for this process.
- Transition period: Once finalized, the SEC typically allows 18–24 months for firms to come into compliance. Proxy advisors would need to restructure disclosure practices, implement compliance policies, and potentially renegotiate client contracts.
- Interim guidance: The SEC may issue non-binding guidance during the transition to clarify expectations and reduce legal uncertainty.
Institutions should prepare by:
- Auditing their current proxy advisor agreements and understanding disclosed conflicts
- Developing or reviewing internal governance frameworks to assess voting recommendations against fund-specific stewardship objectives
- Identifying whether proxy advisor fees would increase materially under registration and budgeting accordingly
- Evaluating whether switching to alternative advisors or in-house voting policies would better serve fiduciary objectives
Large allocators like the Future Fund (Australia's sovereign wealth fund, with AUD 270 billion in assets) and other institutions with dedicated governance teams may weather the transition more easily than smaller regional pension funds, which may face cost pressures pushing consolidation or simplification of voting practices.
What governance concerns motivated this order?
The order reflects convergence among three constituencies: institutional investors frustrated by lack of proxy advisor transparency; corporate governance advocates concerned about concentrated advisory influence; and policymakers who see regulatory arbitrage as a gap in oversight.
Institutional investors have raised concerns about instances where proxy advisor recommendations diverged sharply from client values. Some funds have reported that advisors recommended abstention or opposition on climate governance or board diversity resolutions—areas where the fund had explicitly signaled commitment—without clear rationale or opportunity for client input.
Governance reformers argue that the current system inverts accountability: proxy advisors wield enormous influence over which shareholder proposals succeed, yet are not subject to the same disclosure and fiduciary standards as the asset managers and asset owners who rely on their work.
The order therefore attempts to restore investor control over voting recommendations by making the gatekeeping function more transparent and explicitly accountable.
Implications for Long-Term Allocators
The 2026 proxy advisor order represents a regulatory recalibration rather than a fundamental market disruption. For most institutional investors, the immediate effect will be higher advisory costs and modestly enhanced transparency on conflicts and methodologies.
For sophisticated allocators pursuing disciplined stewardship, the order offers an opportunity to reassess whether proxy advisors are still the optimal voting infrastructure or whether in-house governance expertise, tailored advisory arrangements, or alternative frameworks better serve long-term value creation objectives.
Smaller institutions may find themselves with fewer low-cost advisory options, potentially simplifying voting policies toward mechanical rules rather than judgment-based engagement. This could reduce overall shareholder engagement on governance issues, though it might also eliminate instances where advisors' undisclosed conflicts skewed recommendations away from fund objectives.
Policmakers and institutional investors should monitor implementation to ensure that enhanced proxy advisor regulation increases genuine accountability without inadvertently reducing the diversity of advisory options or the overall level of institutional engagement in corporate governance.