Washington, Dec 12 (NationPress) President Donald Trump has signed an executive order that aims to address the substantial influence two foreign-owned firms have over corporate governance in the United States. This directive initiates extensive regulatory and enforcement reviews of the proxy advisory sector.

The executive order, named Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors, targets Institutional Shareholder Services Inc. and Glass, Lewis & Co., LLC. These firms are noted for controlling over 90 percent of the proxy advisory market and significantly influencing the policies and priorities of America’s largest companies via the shareholder voting process.

The order highlights that, unknown to many Americans, these firms guide clients on how to vote regarding the vast number of shares they manage on behalf of millions of Americans invested in mutual funds and exchange-traded funds. Clients’ holdings often represent a substantial ownership stake in the largest publicly traded companies in the United States, and they typically adhere to the recommendations offered by proxy advisors.

Consequently, the order asserts that proxy advisors exert enormous influence over corporate governance issues, such as shareholder proposals, board composition, and executive compensation, affecting capital markets and the value of Americans’ investments, including 401(k)s, IRAs, and other retirement investment vehicles.

In this executive order, Trump accuses these firms of leveraging their influence to promote radical politically-motivated agendas like 'diversity, equity, and inclusion' and 'environmental, social, and governance' priorities, despite investor returns being the primary concern.

The order cites support for shareholder proposals that demand companies to undertake racial equity audits and significantly cut greenhouse gas emissions, noting that one firm continues to guide based on the racial or ethnic diversity of corporate boards.

Furthermore, the order raises serious concerns about conflicts of interest and the quality of the recommendations made, concluding that the United States must enhance oversight and restore public confidence in the proxy advisory industry by promoting accountability, transparency, and competition.

Trump instructs the Chairman of the Securities and Exchange Commission to review all rules, regulations, and guidance pertaining to proxy advisors and to consider revising or rescinding those inconsistent with the order, especially those related to diversity, equity, and inclusion and environmental, social, and governance policies.

The SEC is also tasked with evaluating changes to shareholder proposal rules, including Rule 14a-8, and enforcing federal securities laws’ anti-fraud provisions against any material misstatements or omissions in proxy advisors’ voting recommendations.

The Federal Trade Commission, in collaboration with the Attorney General, is instructed to assess ongoing state antitrust investigations and examine whether proxy advisors engage in unfair competition or deceptive practices that harm U.S. consumers, including inadequate disclosure of conflicts of interest or misleading information.

Additionally, the Department of Labor is directed to review guidance under the Employee Retirement Income Security Act, particularly whether proxy advisors should be classified as fiduciaries and if they act solely in the financial interests of plan participants, enhancing transparency in the use of proxy advisors in pension and retirement plans.

Proxy advisory firms play a pivotal role in global capital markets, particularly for large U.S.-listed companies that have significant foreign ownership and international investor participation. Their recommendations are closely monitored by institutional investors worldwide, including those from emerging markets like India.