Trump Administration Targets Proxy Advisors, Proxy Voting

January 6, 2026

On December 11, 2025, President Trump issued Executive Order (EO) 14366, “Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors.” The EO asserts that proxy advisor firms “regularly use their substantial power to advance and prioritize radical politically-motivated agendas — like ‘diversity, equity, and inclusion [DEI]’ and ‘environmental, social, and governance [ESG].’” It directs the Department of Labor (DOL), the Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC) to review current policies and decide whether further regulatory or enforcement action is needed. The Council of Institutional Investors (CII) warns that more such regulations “will raise costs which will then be passed along to investors and ultimately borne by pension beneficiaries and retail investors.”

Groom Law, a valued NCTR Commercial Associate member, explains that the EO signals “a renewed focus by the Administration on proxy voting and the role of proxy advisory firms” and their impact on corporate governance. It also “aligns with the Administration’s policy priority to limit the use of environmental, social, and governance (‘ESG’) factors in fiduciary decision making,” Groom underscores.

BACKGROUND

During President Trump’s first term, as part of his effort to curb the influence of ESG factors in investment decision-making, DOL proposed a rule in 2020 regarding the fiduciary duties that govern proxy voting and the exercise of other shareholder rights for investments held by ERISA-covered plans. This rule stressed that proxy voting is a fiduciary act under ERISA and clarified that fiduciaries do not need to vote every proxy, emphasizing that they should only do so if it is determined that the issue has an economic impact on plan investments. Furthermore, fiduciaries should base their decisions solely on “pecuniary” factors.

The 2020 proposal was ultimately modified, with a less prescriptive, restrictive framework and more of a principles‑based approach. Furthermore, after President Biden took office, DOL adopted a revised rule in 2022 that encouraged proxy voting and took a more permissive approach to ESG investing — allowing ERISA fiduciaries to consider ESG factors in investment decision-making. However, Groom notes that “other than removing the statement that fiduciaries need not always vote,” the revised rule “largely retained the provisions of the 2020 rule regarding proxy voting.”

Subsequently, this new 2022 rule was the subject of multiple court challenges, and when Trump regained office, Trump announced in May 2025, that the Biden era rule would no longer be defended by his Administration, and indeed, said it would instead be formally replaced — amounting to a de facto recission. However, a new rule has yet to be announced.

THE EXECUTIVE ORDER

The new EO is aimed specifically at Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co., LLC (Glass Lewis), which the EO says control more than 90 percent of the proxy advisor market, playing “a significant role in shaping the policies and priorities of America’s largest companies through the shareholder voting process.” Consequently, “these proxy advisors wield enormous influence 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,” the EO asserts.

Specifically, Trump’s new EO makes it clear these two firms are advancing and prioritizing “radical politically-motivated agendas” by supporting “shareholder proposals requiring American companies to conduct racial equity audits and significantly reduce greenhouse gas emissions.” Furthermore, the EO asserts “one continues to provide guidance based on the racial or ethnic diversity of corporate boards.”

Therefore, the EO requires the following:

Department of Labor. DOL is directed to take the following steps, as summarized by Groom:

Reassess the ERISA fiduciary rules to decide if proxy advisors should be treated as “investment advice fiduciaries” under ERISA;
Strengthen the fiduciary standards for ERISA-covered retirement plans, including determining whether proxy advisors act solely in the financial interests of participants and the extent to which their practices may undermine the value of plan assets; and
Enhance transparency regarding the use of proxy advisors, particularly with respect to ESG and DEI.

Securities and Exchange Commission. As summarized by CII, the SEC chairman is directed to:

enforce the federal securities laws’ anti-fraud provisions with respect to material misstatements or omissions contained in proxy advisors’ proxy voting recommendations;
assess whether to require proxy advisors to register as Registered Investment Advisors;
consider requiring proxy advisors to provide increased transparency on their recommendations, methodology and conflicts of interest, especially regarding DEI and ESG factors;
analyze whether, and under what circumstances, a proxy advisor serves as a vehicle for investment advisors to coordinate their voting decisions thereby forming a group for purposes of sections 13(d)(3) and 13(g)(3) of the Securities Exchange Act of 1934; and
have SEC staff examine whether the practice of Registered Investment Advisers engaging proxy advisors to advise on non-pecuniary factors in investing including DEI and ESG factors, is inconsistent with their fiduciary duties.

The Federal Trade Commission. The FTC, working with the Attorney General, is ordered to review current state antitrust investigations of proxy advisors to see if there is a probable link between conduct underlying those investigations and violations of Federal antitrust law.

In addition, the FTC is directed to investigate whether proxy advisors engage in unfair methods of competition or unfair or deceptive practices that harm consumers, such as:

conspiring or colluding to diminish the value of consumer investments (including pensions and retirement accounts);
failing to adequately disclose conflicts of interest;
providing misleading or inaccurate information; or
undermining the ability of consumers to make informed choices.

LOOKING AHEAD

First, both Groom and Freshfields — a British multinational law firm headquartered in London with 28 offices in 17 jurisdictions across Asia, Europe, the Middle East and North America that advises national and multinational corporations, financial institutions and governments – point out that EO’s are not the same as laws. Groom explains that EO’s “do not create new law but instead guide agency action under existing law.”

Freshfields also underscores that the new EO “does not itself amend the Exchange Act, the Investment Advisers Act, ERISA, or any [SEC] proxy rules.” Rather, it “directs agencies to consider rulemaking, guidance changes, and enforcement steps.” For example, the law firm notes, the SEC may respond with a range of actions, including notice-and-comment rulemaking, changes in SEC (and staff) guidance, and enforcement actions.

In that regard, Freshfields emphasizes that the SEC “faces some limitations” on what rule sets it can use to regulate proxy advisory firms in the wake of the D.C. Circuit Court’s opinion in Institutional Shareholder Servs., Inc. v. SEC, issued July 1, 2025, which upheld a lower court decision that invalidated the SEC’s earlier regulation of the proxy advisory firms under the federal proxy rules.” This D.C. Circuit ruling, which was not appealed, found the SEC had not shown that the proxy voting advisory firms had “solicited” proxies. “Without a solicitation, the federal proxy rules, including the antifraud provisions of Rule 14a-9, do not apply to ISS and Glass Lewis,” Freshfields explains.

With regard to the SEC’s orders, CII underscores that “[m]ost of the premises that the [EO] uses to justify more regulation of proxy advisors have been refuted repeatedly by CII.” For example, CII emphasizes that proxy advisors do not “advance” one type of shareholder proposal more than any other, pointing to an issue brief that CII published in July to set the record straight on how institutional investors use proxy advisors. The CII issue brief also explains that the advisors’ vote recommendations on different issues “are reflective of the interests and preferences of their investor clients, which are determined by annual benchmark policy surveys.” [For more details concerning the CII issue brief, see the “NCTR FYI” for August 11, 2025, entitled “Challenges to Trustee Management of Plan Assets.”]

Nevertheless, CII warns that the EO “will likely further deter their [proxy advisors’] willingness to recommend support for ‘E’ and ‘S’ proposals, as well as potentially for ‘G’ proposals,” pointing to a memo by Freshfields. “This may also have knock on effects, with institutional investors becoming more circumspect about supporting ‘E’ and ‘S’ (and possibly ‘G’) proposals,” the Freshfields memo adds.

CII also references a memo from the law firm of Latham & Watkins — an American multinational law firm known for its litigation, corporate and regulatory law practices — which comments on the DOL activities in response to the EO. In their memo, the law firm underscores that “[t]he prospect of declaring proxy advisory firms as ERISA fiduciaries may curtail certain practices of proxy advisory firms, including providing guidance that focuses on factors that may be considered non-pecuniary, and may subject proxy advisory firms to additional regulatory oversight and claims (including potentially from plan participants).”

Furthermore, the memo points out that “additional DOL scrutiny and fiduciary regulation may create tension for proxy advisory firms between a desire to give client-specific guidance (which could increase the risk of being a fiduciary) and limiting advice to only generic statements that do not take into account client-specific considerations (in an attempt to avoid fiduciary status).”

CONCLUSION

Groom stresses that ERISA fiduciaries need to keep in mind that, for now, despite the announcement of the intent to rescind the Biden era rule, this has not technically been accomplished, and therefore, the DOL’s 2022 proxy voting rules technically remain in place. However, the EO and DOL’s regulatory agenda, “demonstrate that the Administration is prioritizing changes to the ESG-related rules,” Groom warns.

Also, CII underscores that a survey it conducted in May showed that nearly 70 percent of investor respondents opposed more regulation of proxy advisors and proxy voting. CII warns that such regulations could “raise the barrier to entry resulting in fewer proxy advisors,” as well as increase investors costs — which will then be ultimately passed along to “pension beneficiaries.”

It is also pointed out by Latham & Watkins that ISS and Glass Lewis have already begun to modify their practices in light of the “mounting regulatory pressure” that the EO represents. For example, ISS has revised its proxy voting guidelines to provide that beginning with the 2026 proxy season it will no longer generally recommend voting for environmental and social proposals but will instead evaluate these proposals on a case-by-case basis. Also, Glass Lewis has announced that beginning in 2027 it will move to more customized or “thematic” proxy voting guidelines rather than a single “house” recommendation in order to provide its clients with voting recommendations more closely aligned with the client’s priorities.

In summary, the EO will likely have a significant impact on the operation of proxy advisors and the proxy disclosure practices of public companies, particularly practices and disclosures relating to DEI and ESG. It may deter advice and outreach by proxy advisory firms and institutional investors in the upcoming proxy season, Freshfields warns, further limiting the amount of shareholder engagement public companies receive.

As for Congressional action related to proxy advisors, two House subcommittees — the House Financial Services Committee’s Subcommittee on Capital Markets and the House Education and Workforce’s Subcommittee on Health, Employment, Labor and Pensions — held hearings in 2025 to examine the industry and consider related legislation. However, Congress has not enacted any binding federal law regulating proxy advisory firms in 2025. [For more information on these hearings, see the “NCTR FYI” for May 8, 2025, entitled “CII: Proxy Advisors in Crosshairs on Capitol Hill.”]

[NB: The Congressional Research Service (CRS) – a separate department within the Library of Congress made up of nonpartisan shared staff, serving Congressional committees and Members of Congress and operating solely at the behest of and under the direction of Congress – produced a comprehensive overview of proxy advisor regulation in September, 2025, entitled “Proxy Advisor Regulation: Recent Litigation, State Law Developments, and Federal Legislation.” This provides an overview of the debate surrounding proxy advisor regulation, recent litigation, state law developments involving proxy advisors, and federal legislation that would subject the industry to stricter regulation.]