The Proxy Advisor Balance of Power May Be Shifting

This article has been updated and overhauled.

We stopped counting how many times this article has been updated in response to regulatory and legal twists and turns. Proxy advisor regulation, referring to efforts to constrain the influence and behaviors of proxy advisors, has been debated for over two decades. We’ve been chronicling the debate since 2019, when the Clayton SEC formally made proxy advisor rule-making a priority in advance of releasing its final rule in 2020.

Since then, policy has flip-flopped multiple times and sparked a series of court showdowns. Now, with President Trump’s executive order of December 11, 2025, another major turn of events is on the horizon.

Our prediction, in light of the executive order, is that portions of the original SEC rule will be revived. However, post-2020 litigation has altered the playing field and gives rise to a complicated calculus for the SEC and other agencies now charged with effectuating the guidance from the White House. In the end, we believe this patchwork of regulatory actions will materially reshape the role of proxy advisors and the way executive compensation decisions are made.

We think it’s helpful to capture within one article the rich and complicated history of this entire process. We’ve organized the story into the following chapters:

1. Proxy advisor regulation in a nutshell
2. A brief history of rule-making and reversals
3. The December 2025 executive order
4. Predictions for proxy advisor regulation in 2026 and beyond
5. Implications for executive compensation
6. Core issues in the SEC’s 2020 rule
7. What happens if the 2020 rules are adopted
8. Wrap-up

The underlying arguments about whether and how to regulate proxy advisors get very technical. We’ve saved the deep dive but captured all the essential points in Section 2.

1. Proxy Advisor Regulation in a Nutshell

Before getting into the details, let’s set the stage with the basics: what the SEC sought to accomplish in its initial 2020 rule and how the state of play may evolve in 2026 following years of acrimonious litigation.

The SEC’s goal in 2020 was to curb proxy advisor influence by classifying them as engaging in proxy solicitation. This classification would allow certain requirements to be imposed on proxy solicitors. Most notable are the “notice-and-awareness” provisions, under which proxy advisors would be required to disclose their reports to companies (the notice provision), then distribute company rebuttals to their investment-advisor clients (the awareness provision).

In tandem, the SEC introduced consequential enforcement “teeth” by stating that proxy advisors must disclose and explain their methodology and assumptions to avoid triggering the antifraud provision under the Securities Exchange Act, Rule 14a-9.

All of this logic was later dismantled by the DC Circuit Court, which concluded that proxy advisors aren’t engaged in proxy solicitation. Unless that ruling is appealed to the Supreme Court, the components of the 2020 rule that rely on proxy advisors being subject to the Exchange Act’s solicitation rules crumble.

So what’s left? The other side of what the Clayton SEC set in motion focused on investment advisors, clarifying that they must form their own judgments and not robotically follow proxy advisor recommendations. As discussed below, we expect the SEC and other federal agencies to pick up here. Watch for rule-making and enforcement action that make it extremely difficult for registered investment advisors (RIAs) to place much reliance on proxy voting guidance.

What impact will this have on executive compensation? Reduced proxy advisor influence will lead to more heterogeneity in plan design. Plan design will focus less on how one or two proxy advisors may react, and more on structures grounded in business strategy. At the same time, RIAs will be compelled to develop their own custom voting policies from the ground up, which may lead to more guesswork and calibration. We discuss these and other implications in Section 5.

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2. A Brief History of Rule-Making and Reversals

After over a decade of fits and starts, in 2019, the Clayton SEC prioritized efforts to modernize the proxy voting system, with a focus on proxy advisors, investment advisors, shareholder voting, and more. What followed has been nothing short of a regulatory rollercoaster. The figure below depicts the countless turns of events.

The story begins in August 2019, when the SEC issued interpretive guidance clarifying that proxy advisors engage in proxy solicitation and therefore fall under the proxy solicitation rules of the Exchange Act. The SEC also issued interpretive guidance clarifying the extent to which investment advisors should rely on proxy voting advice relative to their own independent diligence.

Then three months later, on November 5, 2019, the SEC issued two proposed amendments to the Exchange Act, one of which adjusts and formalizes the interpretive release on proxy advisors engaging in proxy solicitation. By that time, Institutional Shareholder Services, the largest proxy advisory firm, had already sued the SEC in response to the August interpretive releases.

In January 2020, the SEC filed an unopposed motion to hold in abeyance, which put the litigation on ice pending release of the final rules. On July 22, 2020, the SEC released its final rules, which incorporated stakeholder feedback while generally maintaining the core framework. Given how contentious stakeholder comments were, the final rules contained numerous concessions and adjustments. But ultimately the rules were adopted with an effective date of December 1, 2021.

ISS promptly reactivated its lawsuit after the SEC’s July 2020 release, launching a lengthy litigation journey. Shortly after the change of administration in 2021, Gary Gensler assumed the role of SEC chair and quickly hit the pause button on the proxy advisor rules. In response to the directive from Gensler, the Division of Corporation Finance announced that it would revisit the guidance and wouldn’t recommend enforcement during that review. The two Republican SEC commissioners publicly objected, expressing skepticism about reversing a rule-making process they said was “beyond reproach.”

On November 17, 2021, the SEC issued a proposing release that preserved the overall architecture of treating proxy voting advice as solicitation under the federal proxy rules, but removed the two controversial components. The commission also eliminated the Rule 14a-9 note that amplified proxy advisor liability.

In July 2022, the SEC formally adopted the proposal in substantially similar form. It also rescinded supplemental 2020 guidance to investment advisors on their responsibility to not blindly follow the voting recommendations of proxy advisors. This 2022 unwinding didn’t end the fight, it simply shifted it to the courts.

Industry groups entered the arena, initiating litigation against the SEC. They argued the SEC’s reversal was arbitrary and capricious under the Administrative Procedure Act because the rule was duly launched under the Clayton SEC and never allowed to take effect. Meanwhile, ISS continued its own litigation seeking full dismantlement of the regulatory framework, as opposed to the partial dismantling effectuated through the SEC’s July 2022 release.

One of the lawsuits supporting proxy advisor regulation was brought by the National Association of Manufacturers (NAM). The NAM’s challenge came to a head in June 2024 when the Fifth Circuit Court of Appeals held that the SEC’s 2022 recission was arbitrary and capricious to the extent it rescinded the notice-and-awareness conditions in the original 2020 rule.

Shortly after, the Sixth Circuit went the other way, upholding the SEC’s 2022 recission by viewing it as a re-weighting of the same considerations, and not a contradictory factual finding. This created an unusual quandary where two appellate courts disagreed. Often, a situation like this ends up at the Supreme Court.

Then came a pivotal development. In July 2025, the DC Circuit ruled in ISS v. SEC that proxy advisors aren’t engaged in solicitation under Section 14(a) of the Exchange Act. The court relied on the plain-language meaning of “solicit,” concluding that proxy advisors provide advice requested by their own clients rather than seeking proxy authority themselves.

Adding another wrinkle, Texas enacted SB 2337, which imposes extensive disclosure and warning requirements on proxy advisors. SB 2337 is especially focused on situations where the advice is based on non-financial factors (think environmental, social, and governance matters) or positions that diverge from management. ISS and Glass Lewis sued, and on August 29, 2025, the Western District of Texas enjoined enforcement pending trial in early 2026.

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3. The December 2025 Executive Order

If you made it through the history above, you probably saw a process that had been beaten, minced, and distorted to the point of insignificance. The executive branch’s entry into the fray could change all of that.

On December 11, 2025, President Trump issued Executive Order 14366, “Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors.” The order directs the SEC chair to:

• Pursue enforcement of antifraud provisions for misstatements or omissions in proxy voting recommendations
• Assess whether certain proxy advisors should register as investment advisors under the Investment Advisers Act of 1940
• Consider requiring more transparency around methodology and conflicts, especially when ESG factors are in play
• Analyze whether proxy advisors can serve as a vehicle for coordination such that they form a “group” under Section 13 of the Exchange Act
• Examine whether RIAs’ use of proxy advisors, especially on ESG matters, is inconsistent with their fiduciary duties

And that’s just the first of a three-pronged approach. The second prong gives the Federal Trade Commission a dual directive. Directive one is to review, in concert with the Justice Department, state antitrust investigations for a probable link to federal antitrust violations. Directive two is to investigate whether proxy advisors engage in unfair methods of competition or deceptive practices.

Finally, the third prong of the executive order directs the Department of Labor to revise regulations by considering whether proxy advisors providing advice for a fee should be treated as ERISA investment advice fiduciaries, and to enhance standards and transparency around proxy advisor use.

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4. Predictions for Proxy Advisor Regulation in 2026 and Beyond

The DC Circuit’s July 2025 ISS v. SEC decision arguably undermines what seems to have been the SEC’s preferred regulatory lever: pulling proxy advisors deeper into the federal proxy rules on the basis that they’re engaged in solicitation. The court made clear that “disinterested, client-requested proxy voting advice” doesn’t constitute solicitation under Section 14(a).

Similarly, the executive order points the SEC toward antifraud enforcement in connection with proxy advisors’ recommendations. However, the DC Circuit’s decision largely undermines application of Rule 14a-9 as the primary vehicle.

Absent Supreme Court review, the clearest path forward for SEC oversight is likely through the Investment Advisers Act. ISS is already an RIA, and Glass Lewis is moving in that direction, bringing both firms squarely within the SEC’s compliance, examination, and disclosure regime.

The SEC also may regulate the users of proxy advice (RIAs and funds) in an effort to limit the influence and reach of proxy advisors. We’d expect the SEC to renew its emphasis on fiduciary duty and the diligence an RIA must do before relying on third-party voting advice, as well as disclosing more clearly how proxy votes are formulated. This in turn will prompt institutional investors to build their own voting frameworks. The end result may be more complexity for issuers if they need to calibrate and appeal to a fragmented landscape of voting frameworks.

An adjacent but relevant vector is shareholder proposal reform. The SEC has already signaled a changed posture for Rule 14a-8 handling, including a published framework for notifications and staff responses and a narrower approach to no-action pathways.

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5. Implications for Executive Compensation

We believe the executive compensation and proxy voting landscape could change materially if actions are taken to curb proxy advisor influence. Here’s what may be in store.

Greater latitude in plan design

ISS in particular has exerted outsized influence over plan design. Without ISS as the center of gravity, we can expect less homogeneity in executive compensation structures.

The North Star of plan design is business strategy, with incentives designed to reinforce it. That can be difficult when deviation from a narrow model carries say-on-pay risk. If that constraint loosens, we may see more diversity in plan design elements such as:

• Length of performance period
• Use of strategic and operational metrics
• Special grants outside the ordinary annual grant cycle
• Award modifications in special situations

This doesn’t mean a free-for-all is coming, but it does suggest that companies will have more latitude to depart from the norm when they can link their choices to a clear business purpose.

Harder-to-predict voting outcomes

If RIAs have to show diligence and maintain documentation around voting decisions, institutional investors will likely develop their own formal and informal models for evaluating:

• Pay-for-performance relationships
• Dilution and program cost tolerance
• Out-of-the-ordinary activities, such as exercises of discretion and special awards

This cuts both ways. On the one hand, companies may spend less energy reverse-engineering or “gaming” the ISS model. On the other, more energy will be spent understanding the stewardship heuristics of top shareholders. While heavyweights like BlackRock, Vanguard, and State Street regularly publish their views, many other investors will have quite a bit of catch-up. This may be a bumpy ride.

A more quantitative proxy

As fiduciary scrutiny of RIAs increases—and with it, potential liability exposure—proxy advisors will demand stronger evidence via the CD&A to support their own backup and documentation.

The risk for RIAs is reputational or legal fallout if they become associated with executive compensation policy deemed excessive or inappropriate. To mitigate that risk, they’ll need more robust internal support for how and why they voted the way they did. This suggests that CD&As will need to become more analytical, as opposed to qualitative, in order to yield stronger and more actionable audit trails.

More focus on the compensation committee process

Today’s disclosures tend to emphasize what compensation actions were or were not taken, often via the familiar “We do” and “We do not do” lists in many proxies. These are fine, but if we see more heterogeneity in design and voting decisions have to be defensible as a fiduciary act, then investors will crave more transparency into how pay decisions are made.

Examples of process-related inquiry include:

• Rigor and methodology behind performance goal setting
• Peer group selection
• Alignment of realized and realizable pay with longer-run performance
• Succession planning and tangible milestones
• Reasons behind various non-GAAP adjustments

To do this right, CD&As will need to move away from boilerplate. Inevitably, there’ll be tension between a legal mindset of “less is more” and an investor mindset that increasingly leans toward “more is more.”

The end of ESG metrics as discrete performance levers

This trend has already begun, but the December 11 executive order explicitly takes aim at ESG considerations. The focus is on proxy advisors and RIAs who bring non-financial factors into the mix, but it’s hard to imagine companies leading with stand-alone ESG metrics and modifiers. We instead expect to see ESG embedded quietly within broader balanced scorecards.

Overall SBC cost taking precedence over governance

The heavy focus on named executive officer pay has pushed traditional fundamental analysis of total compensation costs to the sidelines. That analysis relies on the 10-K and drives buy-sell decisions, not proxy votes. We expect to see investors place greater weight on the aggregate economic substance of a stock-based compensation program versus the narrower governance implications of how the top five executives are paid.

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6. Core Issues in the SEC’s 2020 Rule

The SEC’s 2020 rule-making aimed to ensure proxy voting guidance is accurate, verifiable, and aligned with investors’ best interests. That effort rested on a three-pronged strategy:

1. Solicitation classification. Proxy voting advice was characterized as a form of solicitation, bringing proxy advisors under the Exchange Act’s solicitation rules.
2. Conditional exemptions. To bypass onerous filing requirements, proxy advisors would need to disclose conflicts of interest and meet certain notice-and-awareness conditions. These conditions are at the heart of what corporate issuers have been clamoring for.
3. Liability emphasis. The SEC added a note to Rule 14a-9 highlighting how proxy voting advice could involve misleading statements or critical omissions.

Despite President Trump’s December 2025 executive order, the DC Circuit Court’s July 2025 ruling largely sidelined this strategy. But it’s important to unpack both for historical context and because anything can happen in the months and years ahead.

Issue 1: Regulation Under the Exchange Act

Previously, proxy advisory firms were regulated under the Investment Advisers Act of 1940, which imposes a standard of fiduciary care. The Exchange Act’s proxy solicitation rules set a much higher bar for information quality and accuracy.

The Exchange Act defines solicitation as “a communication to security holders under circumstances reasonably calculated to result in the procurement, withholding, or revocation of a proxy.”  The SEC’s view is that proxy advisors’ activities are, in substance, solicitations because they influence voting outcomes.

By adding paragraph (A) to Rule 14a-1(1)(1)(iii), the SEC sought to clarify that proxy voting advice falls within the scope of the Exchange Act. More specifically, the SEC wrote that it intends this new paragraph to state that

the terms ‘solicit’ and ‘solicitation’ include any proxy voting advice that makes a recommendation to a shareholder as to its vote, consent, or authorization on a specific matter for which shareholder approval is solicited, and that is furnished by a person who markets its expertise as a provider of such advice, separately from other forms of investment advice, and sells such advice for a fee.

As the SEC explains, “The purpose of Section 14(a) [of the Exchange Act] is to prevent ‘deceptive or inadequate disclosure’ from being made to shareholders in a proxy solicitation.” From a principles perspective, the SEC is saying it doesn’t care whether the proxy advisor’s advice is meant to consolidate power for itself (which is never the case) or simply impact proxy outcomes (which is the case), because both acts constitute solicitations as the Exchange Act defines them.

Issue 2: Exemptions and Notice-and-Awareness Requirements

Absent an exemption, any entity or person engaged in proxy solicitation faces certain information and filing requirements. Two exemptions under the Exchange Act have historically shielded proxy advisors:

• Rule 14a-2(b)(1), which exempts agents that aren’t seeking the power to act as a proxy for shareholders (ostensibly, ISS is just trying to sell advice).
• Rule 14a-2(b)(3), which exempts situations where advice comes from an “advisor” (without this exemption, proxy advisors’ businesses would become almost impossible to run).

The SEC added Rule 14a-2(b)(9)(ii) conditioning those exemptions on new disclosure obligations. In short, proxy advisors could remain exempt if they address concerns around potential conflicts of interest, the accuracy and completeness of their advice, and the need for recipients of proxy voting advice to receive counter information from the issuer in a timely fashion.

More specifically, the new rule requires proxy advisors to adopt and publicly disclose policies (the “notice-and-awareness” provisions) to reasonably ensure that:

• Corporate issuers receive a copy of the proxy voting advice at or before the time the proxy advisor’s clients receive it (the notice provision).

• Proxy advisors give their clients access to any response the corporate issuer may have to the proxy advisor’s initial voting advice, and do so in a timely manner before an applicable shareholder meeting (the awareness provision).

While the final rule walked back aspects of the proposed rule, it preserved this notice-and-awareness framework.

Issue 3: Liability Under Rule 14a-9

Even with exemptions, proxy advisors aren’t shielded from Rule 14a-9, which provides a liability framework for misleading statements and omissions in proxy solicitations. In other words, Rule 14a-9 is the punishment clause for releasing bad information.

To comply with Rule 14a-9, proxy advisors must make a good faith effort toward compliance and remediating noncompliance. The SEC has given examples of the types of information a proxy advisor could disclose to avoid a violation of Rule 14a-9. These include:

• Explaining the methodology used to form the proxy voting advice
• Disclosing the sources of information on which the advice is based
• Disclosing material conflicts of interest that arise in connection with the advice

This gives issuers a much easier way to evaluate and fact-check proxy advisor reports.

Issue 4: Investment Advisor Obligations

The final piece of the puzzle is the SEC’s August 2019 interpretive release on investment advisors’ proxy voting obligations, which clarifies how advisors should fulfill their fiduciary and regulatory obligations when they retain proxy advisor firms and other service providers. (The SEC followed up in July 2020 with supplemental guidance, which was later rescinded.)

A central concern was “robo-voting,” or the automation of voting decisions based on proxy advisor recommendations. The SEC framed the issue less as “proxy advisors are bad” and more as “advisors remain responsible.” Practically, this means advisors must have voting policies reasonably designed to serve clients’ best interests, address material conflicts, and conduct appropriate diligence and ongoing oversight of any proxy advisor they use.

The interpretive guidance is worth reading in its entirety, but the key point is that it frames concentrated reliance on proxy advisors as a governance issue and fiduciary risk.

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7. What Happens if the 2020 Rules Are Adopted

The DC Circuit Court’s decision makes it difficult to implement the 2020 rule in its native form. That’s because the 2020 rule classifies proxy advisors as engaged in the act of solicitation, which the court rejected.

Still, if implemented, the effects would be significant.

Issuers would gain a megaphone

The notice-and-awareness provisions would create formal channels for companies to challenge proxy advisor conclusions and share counterarguments with investors. This would modify the current paradigm where ISS draws its conclusion with limited room for revision.

While rebuttals wouldn’t be mandatory, corporate issuers could deploy focused teams to tell their own story, something proxy advisors lack the scale to do. For an example of a very proactive messaging effort, see Abbott’s response to an ISS report from many years ago.

RIAs, in turn, would be expected to give those counterpoints due consideration.

Audit and fact-checking would gain real teeth

By squarely applying Rule 14a-9, the 2020 rules would raise the stakes for proxy advisor accuracy and completeness, creating higher incentives to disclose information sources and more of the methodology behind their reports. With greater transparency, issuers could more effectively identify and publicize omissions and flaws, reaching a much broader RIA audience through formal channels.

That said, this entire framework is effectively short-circuited by the DC Court’s determination that proxy advisors aren’t engaging in solicitation.

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Wrap-Up

In many respects, the SEC waited, planned, analyzed, and waited some more…before springing into action in late 2019 with a comprehensive series of interpretive releases and proposed rules. Then, it waited, planned, analyzed, and sprang into action again in July 2020 with final rules. This wasn’t a slapdash process.

The Gensler SEC wasted no time before hitting the pause button. While we don’t have a dogmatic position on the legal merits, we’re concerned that any effort to overturn the 2020 rule will invite partisan backlash. Too much back-and-forth is bad for markets and investors because it introduces uncertainty. Better to reach a compromise that gives both sides some of what they were after.

What’s most important to corporate issuers? We think it’s the opportunity to seize a louder bullhorn for communicating to investment advisors, paired with the incentive for investment advisors who once voted on autopilot to now consider a broader range of perspectives.

In the meantime, we encourage companies to shore up their internal processes, reconcile proxy advisor frameworks and, more importantly, formulate their own narrative. If you would like to discuss how we could help in any of these capacities, please don’t hesitate to reach out.