Antitrust Scrutiny and Market Power in Proxy Advisory Firms: Assessing the Investment Implications of Regulatory Shifts in Corporate Governance Influence

The corporate governance landscape in the United States is undergoing a seismic shift as regulators and lawmakers intensify their focus on the market power of proxy advisory firms. In 2025, the Federal Trade Commission (FTC) launched a high-stakes antitrust investigation into Institutional Shareholder Services (ISS) and Glass Lewis, two firms that collectively dominate over 90% of the proxy advisory market, according to a Congressional Research Service report. The probe examines whether these firms engage in "unfair methods of competition," particularly in their guidance on contentious shareholder resolutions, as reported by NewsMax. This marks a pivotal moment for investors, as regulatory actions could reshape how corporate governance decisions are made-and how capital is allocated.

A Historical Precedent: Horizontal Shareholding and Antitrust Concerns

The current scrutiny of proxy advisors is part of a broader antitrust narrative that has gained momentum over the past decade. Institutional investors like BlackRock, Vanguard, and State Street now hold significant stakes in competing firms across industries, from technology to banking. This "horizontal shareholding" has raised alarms about eroded competition and inflated consumer prices. According to a Stanford GSB insight, such shareholding patterns have contributed to a 10% increase in airline ticket prices and rising bank fees. While legal frameworks like the Clayton Act could theoretically address these issues, the Stanford GSB insight emphasizes that "policy solutions, not just legal remedies, are needed to restore competitive balance."

Regulatory Reforms and Legal Challenges

The regulatory environment for proxy advisors has become increasingly complex. In 2020, the SEC attempted to assert authority over proxy advisors by redefining their voting advice as "solicitation" under Section 14 of the Securities Exchange Act, a move that was later challenged. This move required firms like ISS and Glass Lewis to disclose conflicts of interest and allow companies to respond to their recommendations, as outlined in the Congressional Research Service report. However, in July 2025, the U.S. Court of Appeals for the D.C. Circuit struck down this rule, ruling that proxy voting advice does not constitute solicitation, as noted in the Congressional Research Service report. This decision has left a regulatory vacuum, with some business advocates suggesting that narrower interpretations of existing laws could still empower the SEC to act, as reported by Bloomberg Law.

Meanwhile, state-level initiatives are adding another layer of complexity. Texas's Senate Bill 2337 (SB 2337), for instance, mandates that proxy advisors disclose the basis of their recommendations when they include nonfinancial factors like ESG considerations, as described in the Congressional Research Service report. Such laws could fragment the regulatory landscape, forcing firms to navigate a patchwork of requirements while investors recalibrate their strategies.

Investor Strategies in a Shifting Landscape

Investors are already adapting to these changes. The adoption of proxy access-a mechanism allowing shareholders to nominate directors for inclusion in proxy materials-has surged at large U.S. public companies. This trend, driven by institutional investors, has increased board diversity and responsiveness to shareholder concerns, as detailed in a Harvard Law review. For example, proxy access proposals have seen high success rates in the S&P 500 and Russell 1000 indices, according to the Harvard Law review. However, the recent antitrust focus on proxy advisors could complicate these strategies. If regulators curtail the influence of ISS and Glass Lewis, companies may gain more autonomy in governance decisions, potentially diluting the impact of ESG-driven shareholder resolutions.

Investment Implications: Navigating Uncertainty

The regulatory shifts pose both risks and opportunities for investors. On one hand, stricter oversight of proxy advisors could reduce the prevalence of "robovoting"-where institutional investors mechanically follow proxy recommendations without independent analysis, as noted in the Congressional Research Service report. This might lead to more nuanced corporate governance debates, benefiting companies that proactively engage with shareholders. On the other hand, fragmented regulations and legal uncertainties could increase compliance costs for firms, particularly those with cross-border operations.

For ESG-focused investors, the implications are particularly acute. If proxy advisors are required to disclose the financial rationale behind ESG recommendations, the salience of nonfinancial factors in voting decisions could diminish. This might pressure companies to align their ESG strategies with clearer financial metrics, potentially reshaping the ESG investment landscape.

Conclusion: A New Era of Governance

The antitrust scrutiny of proxy advisory firms is not merely a regulatory issue-it is a fundamental reevaluation of how corporate power is distributed in the 21st century. As the FTC, Congress, and state legislatures grapple with these challenges, investors must stay attuned to the evolving rules of the game. The coming years will likely see a more dynamic interplay between governance, competition, and capital allocation, with far-reaching consequences for markets and shareholders alike.