The administration argues that this influence has increasingly been used to promote non-financial objectives.
The order states that 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.”
It further claims that these firms have backed shareholder proposals calling for racial equity audits, aggressive emissions reductions and voting frameworks tied to board diversity metrics, raising concerns that political considerations are being injected into corporate governance decisions.
To address those concerns, the executive order instructs the Securities and Exchange Commission to conduct a broad review of existing rules, guidance and enforcement practices related to proxy advisory firms. The SEC is directed to consider whether current policies should be revised or withdrawn, particularly where they intersect with politically sensitive areas.
The commission is also told to evaluate whether proxy advisors should be required to register as investment advisers and whether their voting recommendations are subject to existing anti-fraud provisions. In addition, regulators are asked to assess whether proxy advisory practices result in coordinated voting behavior that could raise issues under federal securities laws.
