Glass Lewis's Governance Shifts: A Mirror of 2025's ESG and Political Realignment

The corporate governance landscape in 2025 is undergoing a seismic shift, driven by a confluence of regulatory retrenchment, political realignment, and the rise of technology-driven accountability. At the heart of this transformation is Glass Lewis's decision to phase out benchmark voting recommendations by 2027, a move that reflects-and accelerates-a broader redefinition of how companies are held to account for environmental, social, and governance (ESG) performance. This shift is not occurring in a vacuum; it is deeply intertwined with the unraveling of federal ESG mandates in the U.S., the rise of state-level climate regulations, and the growing emphasis on AI governance as a core ESG concern.

The End of Benchmark Voting: A Response to Regulatory Uncertainty

Glass Lewis's pivot away from standardized voting guidance is a direct response to the fragmented and increasingly politicized regulatory environment. According to a report by Reuters, the firm plans to replace its benchmark recommendations with tailored options for clients, emphasizing a "holistic" approach to executive compensation and AI oversight. This move mirrors the U.S. Securities and Exchange Commission's (SEC) recent withdrawal of key ESG disclosure rules, including the stalled climate reporting framework. As federal regulators retreat from ESG mandates, proxy advisors like Glass Lewis are stepping into the void, crafting policies that blend corporate governance best practices with investor priorities.

For example, Glass Lewis now requires companies using AI to disclose how boards oversee AI-related risks, ensuring directors are "fully versed" in the technology. This aligns with the European Union's AI Act, which enforces a risk-based approach to AI systems, and the U.S. National Institute of Standards and Technology's (NIST) AI Risk Management Framework. By embedding AI governance into its voting guidelines, Glass Lewis is positioning itself as a bridge between emerging regulatory expectations and corporate accountability.

ESG in the Post-Federal Era: State-Level Mandates and Global Standards

The SEC's retreat from federal ESG rules has created a patchwork of requirements, with states like California emerging as de facto regulators. Laws such as SB 253 and SB 261 now mandate detailed climate disclosures, including scope 3 emissions, for large companies operating in the state. Glass Lewis's updated policies reflect this reality, with increased scrutiny of board responsiveness to shareholder proposals receiving over 30% of votes cast. This mirrors California's emphasis on stakeholder engagement, where companies must demonstrate transparency not just to regulators but to investors and activists alike.

Meanwhile, international frameworks like the EU's Corporate Sustainability Reporting Directive (CSRD) are setting global benchmarks. Glass Lewis's 2025 guidelines now expect companies to align with these standards, particularly in the UK and Europe, where board diversity requirements are tightening. For instance, the firm now mandates at least two gender-diverse directors for non-FTSE 350 companies, a policy influenced by the UK Financial Conduct Authority's (FCA) listing rules.

Political Realignment and the Proxy Voting Reforms

The political realignment post-2024 has further complicated the ESG landscape. The SEC's new leadership, under Chair Paul Atkins, has signaled a restrained approach to ESG, with a focus on "shareholder primacy" over stakeholder concerns. This shift is evident in the agency's revised interpretation of shareholder engagement rules, which now makes it harder for investors to influence ESG policies without risking disqualification from passive investor reporting. Proxy advisors like Institutional Shareholder Services (ISS) have also adjusted their policies, with ISS no longer factoring board diversity into director recommendations.

Glass Lewis's decision to end benchmark voting guidance can be seen as a strategic adaptation to this environment. By offering more flexible, case-by-case recommendations, the firm is catering to a market where regulatory certainty is low, and investor priorities are increasingly divergent. For example, its updated approach to reincorporation proposals-evaluating them based on shareholder rights and governance structures-reflects a focus on corporate flexibility in a regulatory climate where companies may seek to optimize under less prescriptive rules.

Implications for Investors and Corporate Strategy

For investors, the shift away from benchmark voting introduces both opportunities and risks. On one hand, tailored guidance allows for more nuanced assessments of companies' ESG performance, particularly in high-risk areas like AI governance. On the other hand, the lack of standardized metrics could lead to inconsistencies in how ESG factors are evaluated, complicating comparative analysis.

Corporations, meanwhile, must navigate a dual challenge: complying with a fragmented regulatory landscape while meeting the evolving expectations of proxy advisors. The rise of AI governance as a core ESG concern, for instance, requires companies to not only disclose board oversight but also demonstrate tangible risk mitigation strategies. As noted in a Harvard Law School Corporate Governance blog, firms that fail to address AI-related controversies-such as biased algorithms or data privacy breaches-risk Glass Lewis recommending against their directors.

Conclusion

Glass Lewis's 2025 policy changes are not merely a shift in proxy advisory practices; they are a barometer of the broader realignment in corporate governance and ESG. As federal regulators retreat and state and international bodies step forward, proxy advisors are redefining their role as both arbiters of best practices and navigators of political uncertainty. For investors, the message is clear: the days of one-size-fits-all ESG metrics are over. The new era demands agility, transparency, and a willingness to engage with the complex interplay of technology, governance, and stakeholder expectations.