In December 2025, the U.S. administration issued a sweeping Executive Order (EO) directing the Securities and Exchange Commission (SEC), Department of Labor (DoL), and Federal Trade Commission (FTC) to significantly increase scrutiny of proxy advisory firms, most notably Institutional Shareholder Services (ISS) and Glass Lewis, which together influence the vast majority of proxy votes at U.S. public companies. While the order does not immediately change proxy rules, it initiates a multi-agency regulatory process that could materially reshape shareholder voting dynamics, ESG and DEI proposal outcomes, and how boards engage investors ahead of the 2026 proxy season and beyond.
Key takeaways:
- Proxy influence is entering a period of regulatory uncertainty, as the new EO sets the stage for potential changes to how proxy advisors are regulated, disclose conflicts, and shape institutional voting
- Shareholder proposal rules, especially ESG-related ones, may tighten; the SEC has been directed to revisit the shareholder proposal process
- Boards will need to rely less on proxy firm signals and more on direct investor engagement
- Governance, compensation, and disclosure quality will matter more, not less, as increased scrutiny on voting advice elevates the importance of clear, defensible board decisions and long-term strategy
On December 11, 2025, the White House issued an Executive Order (Protecting American Investors from Foreign Owned and Politically Motivated Proxy Advisors) instructing federal agencies to examine whether proxy advisory firms exert disproportionate influence over corporate governance and shareholder voting outcomes. According to the Financial Times, the order reflects longstanding criticism — particularly from corporate issuers and some policymakers — that proxy advisors promote standardized governance positions, including ESG and DEI-related recommendations, without sufficient transparency or accountability.
The Trump administration contends that the firms’ influence has led to reduced returns and diminished trust among investors.
“Conflicts of interest, lack of transparency, and one-size-fits-all voting policies have eroded trust and hurt the value of retirement savings for everyday Americans,” the White House stated.
The order details:
- The SEC to review existing proxy advisory guidance, consider additional disclosure or registration requirements, reassess Rule 14a-8 (shareholder proposals), and evaluate whether coordinated voting facilitated by proxy firms could raise securities law concerns.
- The Department of Labor to strengthen oversight of how ERISA fiduciaries rely on proxy advisors when voting for retirement plan assets.
- The FTC to examine whether proxy advisory firms engage in anticompetitive conduct.
While the EO doesn’t immediately change proxy advisor rules for the 2026 proxy season, it signals major future scrutiny. The SEC will be reviewing rules for increased transparency, potential RIA (Registered Investment Advisor) registration, and enforcement of anti-fraud laws (especially concerning DEI and ESG). The order extends beyond the SEC to the Federal Trade Commission, working with the Justice Department, which is instructed to review state level antitrust investigations involving proxy advisors and determine whether their conduct constitutes unfair or deceptive practices that harm investors.
It also probes whether advisors enable coordinated voting and breach of fiduciary duties, prompting firms like ISS to adjust ESG factors and clients to reassess documentation under intense regulatory pressure.
Thus, institutional investors and others that either vote proxies or use proxy advisory firms should anticipate further upheaval as the regulatory and scrutiny continues.
Read the full Executive Order here: Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors
Actions boards can take:
- Strengthen direct investor engagement. Prioritize year-round dialogue with top shareholders above and beyond peak proxy season
- Stress-test proxy-sensitive decisions. Re-evaluate executive pay, board refreshment, and ESG commitments under multiple voting scenarios
- Upgrade disclosure quality. Ensure proxy statements clearly articulate strategy, performance linkage, and board oversight
- Monitor regulatory developments and anticipate more changes. Assign explicit oversight to the governance or nominating committee for proxy advisor and shareholder rights regulation
- Equip and train directors. With more emphasis on director competency, companies will need to articulate the rationale for their nominees. Ensure technical readiness and sufficient briefings, trainings on key areas of governance
Questions for the boardroom:
- How dependent are our recent proxy outcomes on proxy advisor recommendations versus direct investor support?
- Are our governance, compensation, and ESG disclosures strong enough to stand on their own if proxy signals weaken?
- Which investors matter most to our vote outcomes, and how well do we understand their evolving voting framework?
- Are management teams and the board in agreement on how to engage investors in a more fragmented proxy environment?
- Do our directors have appropriate and sufficient skills, especially as the EO is raising this as an area of inquiry?
Additional Telesto resources:
- BoardCollective by Telesto, is an exclusive resource dedicated to providing targeted sustainability training, insights, and resources to current and aspiring board members
- Prism, our ESG benchmarking tool, helps your organization to rapidly strengthen its Sustainability, Climate, and ESG performance and disclosures through in-depth benchmarking of industry peers and identification of gaps and areas of distinction
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