On December 11, 2025, President Trump signed Executive Order 14366, titled “Protecting American Investors From Foreign-Owned and Politically-Motivated Proxy Advisors.” The order assigns the largest number — and some of its most significant — responsibilities to the Securities and Exchange Commission (SEC), which is the primary focus of this article, while also directing the Department of Labor (DOL) and the Federal Trade Commission (FTC) to take certain related actions.
The order focuses primarily on two leading proxy advisory firms, Institutional Shareholder Services (ISS) and Glass, Lewis & Co., which together account for more than 90% of the proxy advisory market and “advise their clients about how to vote the enormous numbers of shares their clients hold and manage on behalf of millions of Americans in mutual funds and exchange traded funds.” Thematically, the order reflects concerns that proxy advisory firms prioritize what it characterizes as “radical politically-motivated agendas,” particularly environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI) considerations in advising clients how to vote, notwithstanding the order’s framing that investor returns “should be the only priority.” It also raises concerns regarding proxy advisers’ influence on corporate governance outcomes through shareholder voting, market concentration, the quality and accuracy of voting recommendations, and potential conflicts of interest.
The stated purpose of the order is to prompt increased oversight of proxy advisers by the SEC, the FTC, and the DOL, through a review — and potential revision — of existing regulatory frameworks governing transparency, competition, and accountability, with the ultimate goal of “restor[ing] public confidence in the proxy advisor industry.”
This article examines the order’s core premises, the legal and regulatory context in which it operates, and the constraints likely to shape the SEC’s response.
ESG and the Assumption of Political Neutrality
Even though the ESG debate has long been structured along partisan and ideological lines, the order appears to proceed from the premise, among others, that limiting or opposing ESG considerations renders proxy voting and proxy advice politically neutral, while ESG-based recommendations are treated as inherently political. Under this framing, restricting ESG considerations is presented as a means of “protecting investors from politicized advice” by “depoliticizing” shareholder voting.
This apparent framing is significant because it underlies many of the order’s SEC-focused directives, particularly those addressing fiduciary duties, disclosure obligations, and the regulatory classification of proxy advice. Whether ESG considerations should factor into proxy voting seems to reflect a value judgment about shareholder priorities and corporate purpose, rather than a settled or value-neutral regulatory baseline.
The Role and Influence of Proxy Advisory Firms
Debates over the appropriate regulatory treatment of proxy advisory firms have long focused on their influence over shareholder voting and corporate governance outcomes. Institutional investors dominate corporate voting, owning more than 70% of U.S. equity markets and voting at higher rates than retail investors, and they often vote their shares in accordance with proxy advisory recommendations. The growing volume and complexity of shareholder proposals have further expanded demand for proxy advisory services.
Critics argue that proxy advisory firms exert outsized influence, operate with conflicts of interest, and support, for example, ESG-oriented shareholder proposals that may harm shareholder value. By contrast, ISS and Glass Lewis contend that ESG considerations are evaluated in their benchmark voting policies based on potential impacts on long-term shareholder value and risk-adjusted financial returns.
In response to evolving investor preferences and regulatory scrutiny, proxy advisory firms already have been adjusting their business models. In October 2025, Glass Lewis announced that beginning in 2027, it plans to transition away from a single benchmark voting policy toward more customized voting recommendations tailored to individual investor priorities. Glass Lewis cited advances in technology and increasing divergence among investor views, suggesting that proxy advisory practices may continue to evolve through market-driven changes, independent of regulatory action.
Overarching Mandate for SEC Review of Existing Rules and Guidance
The order includes a broad mandate directing the SEC to review existing rules, regulations, guidance, bulletins, and memoranda relating to proxy advisers and to consider revising those that are inconsistent with the order’s purpose, “especially to the extent that they implicate [DEI] and [ESG] policies.”
Historically, SEC rulemaking and guidance have, if anything, contributed to the growth and influence of proxy advisory firms. In the early 2000s, the SEC required investment advisers to adopt proxy voting policies, and subsequent SEC guidance and no-action letters recognized proxy advisory firms as independent third parties that could assist institutional investors in discharging their voting obligations.
The order seems to invite SEC reconsideration of those regulatory choices in light of how proxy advisers’ influence, market concentration, and voting methodologies have developed over time. Even prior to the order’s issuance, the SEC had taken steps that may reduce proxy advisers’ relative influence. For example, in September 2025, the staff of the SEC’s Division of Corporation Finance issued a no-action letter to Exxon Mobil Corp. confirming that the division’s staff would not recommend enforcement action under the SEC’s proxy rules with respect to a proposed retail voting program. That program allows shareholders to provide standing instructions authorizing the company to vote their shares in accordance with board recommendations at all future shareholder meetings, unless and until the shareholder revokes those instructions.
Although Exxon Mobil’s plan is already under legal challenge, widespread adoption of similar voting arrangements — if upheld — could increase the proportion of shares voted in accordance with management recommendations, thereby reducing the relative influence of proxy advisers whose recommendations diverge from those of company boards.
More Specific SEC Mandates
In addition to its overarching directive, the order sets forth several more specific mandates for SEC consideration. These mandates do not appear intended to preclude the SEC from taking other actions and in many respects overlap with the broader review contemplated by the order.
Rule 14a-8 Under the Securities Exchange Act of 1934
The order directs the SEC to consider revising or rescinding Rule 14a-8 of the Securities Exchange Act of 1934 (Exchange Act), which governs shareholder proposals, if the rule is deemed inconsistent with the order’s purpose.
This directive reflects the order’s premise that ESG- and DEI-related shareholder proposals are frequently political or nonpecuniary in nature. At the same time, Rule 14a-8 has long served as a mechanism through which shareholders raise a wide range of issues, both pecuniary and nonpecuniary, and its proper scope remains a hotly contested question requiring the balancing of state and federal legal considerations, investor protection concerns, and broader public policy objectives.
In November 2025, the SEC’s Division of Corporation Finance announced that it would not process most no-action requests seeking to exclude shareholder proposals under Rule 14a-8 during the 2025–26 proxy season, instead permitting issuers to make reasonable exclusion determinations based on existing guidance and precedent. As Commissioner Caroline Crenshaw observed, this approach affords companies significantly greater discretion in determining whether to exclude shareholder proposals.
The division also indicated that SEC staff will continue to process no-action requests to exclude “precatory” shareholder proposals (i.e., non-binding proposals that often concern ESG or DEI matters) that are not proper subjects for shareholder action under state law. In this regard, the division’s announcement referenced a recent speech in which SEC Chairman Paul Atkins indicated that SEC staff will now, in some cases, be more willing to respond favorably to such requests.
Taken together, these developments may reduce the number of proxy statements that include shareholder proposals of the sort over which proxy advisers are perceived to exert inappropriate influence. Nonetheless, questions remain regarding the extent to which the SEC staff will extend its revised proxy statement procedures beyond the current proxy season.
SEC Enforcement of Federal Securities Anti-Fraud Provisions
The order directs the SEC to enforce federal securities law anti-fraud provisions in connection with proxy advisers’ voting recommendations, including material misstatements or omissions. Existing anti-fraud authority in the proxy context includes Exchange Act Rule 14a-9, which prohibits materially false or misleading statements made in connection with proxy solicitations. Historically, the SEC interpreted proxy voting recommendations issued by proxy advisory firms as “solicitations,” thereby subjecting them to Rule 14a-9, and, in 2020, the SEC incorporated that interpretation into its proxy rules.
However, that interpretation was rejected in July 2025 in ISS v. SEC, by the U.S. Court of Appeals for the D.C. Circuit. The court upheld the district court’s vacatur of the SEC rule provision incorporating that interpretation, emphasizing that proxy advisory firms do not initiate proxy solicitations, seek proxy authority for themselves, or act as agents empowered to vote on shareholders’ behalf. Rather, they provide research and voting recommendations at the direction of their institutional investor clients. Therefore, the court determined that proxy voting advice does not constitute a solicitation within the meaning of Exchange Act Rule 14a-1.
Accordingly, the usual proxy voting recommendations issued by proxy advisory firms to their institutional clients are now beyond the reach of Rule 14a-9, which is the most obvious SEC anti-fraud provision that otherwise might apply to such advice. Nevertheless, in theory, the SEC still might attempt to use various of its anti-fraud provisions to address, directly or indirectly, at least some types of perceived fraudulent conduct by proxy advisers. By doing so, however, the SEC would risk straying into conduct that other Trump executive orders caution against and that Atkins has generally sought to avoid, namely, “regulating by enforcement,” penalizing alleged disclosure deficiencies that are not “material” to investors under traditional securities law standards, and overstretching the agency’s statutory jurisdiction. Resolving such tensions will present a significant challenge for the SEC.
Investment Adviser Registration
The order directs the SEC to assess whether proxy advisers should be required to register as registered investment advisers (RIAs) under the Investment Advisers Act of 1940 (Advisers Act).
This directive revisits a long-standing regulatory question: whether proxy advisory firms’ provision of voting recommendations and related research constitutes investment advice requiring RIA registration. Historically, proxy advisory firms have not been required to register, in part because their services have been viewed as generalized research or recommendations rather than individualized advice tailored to a particular client’s investment objectives.
ISS is already an RIA, and in November 2025, Glass Lewis publicly announced its intention to register as well. As a result, the practical consequences of this directive may be limited, particularly if other proxy advisory firms follow suit.
Investment adviser registration nevertheless carries significant implications, including compliance obligations, fiduciary duties, and SEC examination authority. At the same time, any move by the SEC toward requiring mandatory registration could raise threshold questions regarding statutory authority, the distinction between advice and opinion, and potential constitutional considerations. Resolution of these issues would also depend on the specific activities in which a given proxy advisory firm engages, suggesting that any further SEC action in this area is likely to be incremental.
Enhanced Transparency Requirements
The order directs the SEC to consider enhanced transparency requirements relating to proxy advisers’ voting recommendations, methodologies, and conflicts of interest, particularly as they relate to ESG and DEI factors.
Transparency and conflicts of interest have long been central themes in SEC consideration of proxy adviser regulation, including rules adopted in 2020 and later revised. Proxy advisory firms already commonly provide certain disclosures regarding methodologies and conflicts. To the extent that proxy advisory firms are, or become, RIAs, the Advisers Act provides a clear framework for imposing additional disclosure obligations tied to fiduciary duties.
In considering any new transparency requirements for proxy advisers, the SEC also will need to balance concerns about regulating by disclosure, requiring disclosures that are not material to investors, and acting beyond its statutory authority. Under the circumstances, the SEC may be less inclined to impose certain disclosure requirements on proxy advisory firms that are not RIAs.
Finally, as discussed further below, certain recent state law disclosure requirements also may have bearing on any additional disclosure requirements that the SEC decides to adopt for proxy advisory firms.
Sections 13(d)(3) and 13(g)(3) of the Exchange Act
The order directs the SEC to analyze circumstances under which reliance on proxy advisers by RIAs could constitute voting coordination for purposes of Sections 13(d)(3) and 13(g)(3) of the Exchange Act.
This directive raises complex questions regarding the application of “group” concepts to modern proxy voting practices. Historically, institutional investors have generally avoided group status through independent decision-making, even where they rely on common third-party research or recommendations. Whether reliance on proxy advisory firms could alter that analysis remains uncertain.
In this regard, the D.C. Circuit’s conclusion that proxy advice does not constitute a “solicitation” was in part based on the degree of independence from any soliciting party that the court ascribed to the proxy advisers — and implicitly to the proxy advisers’ clients — in that case. Similar facts, without more, could weigh against characterizing such clients’ reliance on their adviser(s) as coordinated group action.
Like many of the order’s directives, this provision appears to identify an area for study rather than signal an imminent shift in regulatory approach.
Registered Investment Adviser Reliance on Proxy Advice Based on Nonpecuniary Factors
Finally, the order directs the SEC to evaluate whether reliance by RIAs on proxy advisors for nonpecuniary considerations, including ESG and DEI factors, is consistent with fiduciary duties.
Whether ESG considerations are pecuniary remains unsettled. For example, in January 2025, in Spence v. American Airlines Inc., a federal district court in Texas closely examined ESG-motivated investing and stewardship activities undertaken by BlackRock Institutional Trust Co. on behalf of ERISA plan participants and beneficiaries. In that ERISA context, the court concluded that ESG-motivated investing and proxy voting were necessarily nonpecuniary and therefore conflicted with the ERISA fiduciary duty of loyalty to act solely in the long-term financial interests of plan participants and beneficiaries.
By contrast, proxy advisory firms and institutional investors, such as BlackRock, maintain that ESG factors such as executive pay and climate change are financially material factors that may directly affect long-term value and risk-adjusted return. Under that view, ESG considerations are not pursued as social or political ends in themselves, but rather as components of prudent risk management and value maximization.
Academic literature similarly reflects a lack of consensus on ESG investing, including its precise definition, financial relevance, corporate performance implications, and underlying motivations, all of which continue to evolve over time. Some scholars emphasize that fiduciary law — particularly under ERISA — does not permit fiduciaries to subordinate beneficiary financial interests to broader social goals and that ESG considerations must be justified, if at all, by their demonstrated financial relevance. Other scholars, by contrast, highlight the absence of a settled conception of shareholder primacy or value maximization and observe that corporate governance theory itself remains contested; in practice, corporate law generally affords boards substantial discretion, frequently protected by the business judgment rule, when exercising managerial judgment.
While similar fiduciary duty questions arise under the Advisers Act, their resolution may differ from the ERISA context given differences in governing law, regulatory objectives, and interpretative authorities. Under the Advisers Act, fiduciary analysis is likely to be highly fact-specific, turning on considerations that may include the nature and investment objectives of the client relationship, the terms of the advisory agreement, the character of the proxy advice being provided, how that advice is used by the RIA, and the disclosures made to clients regarding those practices.
Accordingly, although the order directs the SEC to examine whether RIA reliance on proxy advice grounded in ESG or other nonpecuniary considerations is consistent with fiduciary obligations, that inquiry is unlikely to yield categorical answers. Instead, any SEC response will need to account for the distinct statutory frameworks governing ERISA and investment advisers, the lack of consensus regarding ESG’s financial materiality, and the fact-intensive nature of fiduciary analysis under the Advisers Act.
Potential Role for State Law
Texas has enacted legislation that may further aspects of the order’s objectives. Texas SB 2337, signed into law in June 2025, regulates proxy advisory activity involving the many — and growing — number of significant companies incorporated or headquartered in Texas. The statute imposes extensive disclosure requirements on proxy advisory firms when voting recommendations diverge from management recommendations or are based, in whole or in part, in what the bill considers nonfinancial considerations, including ESG and DEI factors.
ISS and Glass Lewis have challenged the statute in federal court, asserting constitutional and statutory claims, including under the First Amendment and the Advisers Act. A preliminary injunction currently blocks enforcement, and trial on the merits is scheduled for February 2026. Central to the litigation are interpretive questions regarding terms such as “solely in the financial interest of shareholders” and the lack of settled definitions for ESG and DEI.
If the Texas statute survives legal challenge, it could, for example, influence further SEC action in response to the order, particularly if other states adopt similar disclosure requirements. For example, the SEC could model aspects of its own disclosure regime on state law or, alternatively, refrain from adopting certain disclosure requirements in deference to state regulatory choices.
In this regard, Atkins expressed a preference for greater SEC deference to state law where the agency lacks a clear statutory mandate to preempt state regulation. For example, he noted that state corporate law may permit higher ownership thresholds for shareholder proposal eligibility than those set forth in the SEC’s proxy rules and indicated that the SEC should allow companies to exclude proposals submitted by shareholders who do not meet such state law-permitted thresholds.
Predicting the SEC’s Final Act
Predictability in regulatory outcomes typically requires convergence across legal authorities. At present, however, the regulatory environment governing proxy advisory firms reflects multiple independent legal and public policy vectors moving simultaneously across executive action, agency interpretation, judicial doctrine, and state legislation.
Executive Order 14366 rests on contested assumptions regarding political neutrality, the pecuniary relevance of ESG considerations, and the scope of regulatory authority — issues that remain unsettled as a matter of law and academic debate. Rather than resolving these questions, the order enters a fragmented legal landscape. As a result, notwithstanding heightened regulatory and litigation activity, the order is unlikely to produce near-term, predictable impacts for proxy advisory firms or their clients. The order’s practical significance will depend less on its issuance than on how courts, the SEC, and other regulators ultimately resolve the underlying questions it surfaces.
