Heritage Playbook Sets Up Antitrust Pressure on Proxy Advisers

Republicans and companies have looked to securities regulators to curb firms that advise shareholders on environmental, social, and governance issues, with limited success.

But with the Trump administration implementing a Heritage Foundation anti-ESG playbook, antitrust enforcement could be the next front in the campaign against proxy advisory firms Institutional Shareholder Services Inc. and Glass, Lewis & Co. The firms, which control most of the proxy advice industry, form a “duopoly” that the Department of Justice or Federal Trade Commission should investigate, Heritage argued in a recent report.

President Donald Trump already has implemented several of the guide’s recommendations, including rescinding Biden-era diversity, equity, and inclusion initiatives and directing agencies to take legal action against DEI practices. The December report, “ESG, DEI, and What to Do About Them,” followed Heritage’s Project 2025, another blueprint for Trump administration action.

“You have two firms that are totally dominant in that industry,” said David Burton, a Heritage senior fellow, who authored the anti-ESG report. “It seems to warrant an investigation, and you really won’t know if there are violations unless there’s an investigation.”

The guide came the same month the Republican-led House Judiciary Committee issued its own report raising antitrust concerns over the proxy firms’ dominance in their sector.

ISS and Glass Lewis have faced attacks for years, driven by Republican and corporate concerns that the firms improperly shape votes on ESG issues and other matters at companies’ annual meetings. Rep. Bill Huizenga (R-Mich.) once said at a House Financial Services Committee hearing that they “hijack the shareholder process.”

The firms have disputed the claims and are fighting restrictions from Trump’s first Securities and Exchange Commission. Anti-fraud and public filing requirements from the 2020 rules remain in limbo amid litigation.

ISS, Glass Lewis, and the Federal Trade Commission declined to comment. A spokesperson for the Department of Justice’s Antitrust Division didn’t respond to a request for comment.

ESG Backlash

The target on proxy advisers’ back is part of a broader ESG backlash that took off inside the GOP a few years ago. The House Judiciary Committee, led by Rep. Jim Jordan (R-Ohio), in 2023 launched an investigation into what it’s dubbed a “climate cartel” of money managers colluding to target US companies.

The ongoing probe has corresponded with at least 70 firms withdrawing from the Climate Action 100+, an investor-led group formed to fight climate change, according to a House report published in December.

States have also brought lawsuits in the investigation’s wake. The Texas attorney general in November sued BlackRock Inc. and other money managers that were once members of the Climate Action group for allegedly conspiring to pressure companies into reducing coal output.

House Democrats have dismissed the Judiciary probe for using a “bogus” theory to protect Big Oil. But there’s no doubt it’s created serious legal risks for some companies, with Trump’s election adding to them.

When “we’re talking with clients about Trump. 2.0, we’re telling them this is an area of focus,” said Michael Keeley, the head of Axinn’s antitrust practice.

Proxy Firm Defense

ISS and Glass Lewis have pushed back for years on claims they use their grip on the proxy advice industry to push an ESG agenda at companies.

Both firms have said that pension funds and other large shareholders hire them to provide recommendations on how to vote shares at company annual meetings. But the firms’ clients don’t have to take the advice they get, ISS and Glass Lewis officials have maintained.

Any antitrust concerns about ISS and Glass Lewis are unwarranted, said Nell Minow, a former ISS president. The firms aren’t blocking competitors, engaging in price fixing, forcing investors to use their services, or involved in any other anticompetitive activity, said Minow, who also worked in the DOJ Antitrust Division.

The DOJ told ISS during the Reagan administration that its business model didn’t raise antitrust concerns, either, after the firm asked the agency to review it. The agency had “no current intention” to bring an antitrust case against ISS, according to a 1987 DOJ letter obtained by Bloomberg Law.

The letter could provide ISS a defense during a possible antitrust investigation and litigation, even decades after it was written, said Minow, now vice chair of ValueEdge Advisors, which works with institutional investors on corporate governance.

“If I were at ISS today, I would hire the best lawyers in town and fight it as aggressively as possible,” Minow said. “There’s not one element of antitrust law that these companies are violating.”

Trump Interest?

How seriously the Trump administration is considering an antitrust investigation of ISS and Glass Lewis is unclear.

Gail Slater, who was confirmed as the DOJ Antitrust Division’s leader March 11, didn’t discuss the proxy firms or ESG during her nomination hearing in February. FTC Chairman Andrew Ferguson also hasn’t discussed the firms in recent public remarks. But in November he raised concern on X about “ESG and DEI coordination.”

The DOJ Antitrust Division during Trump’s first term backed SEC efforts to restrict ISS and Glass Lewis. The DOJ was aware of concerns of a proxy firm duopoly that “disproportionately” influences shareholder voting, then-Assistant Attorney General Makan Delrahim wrote in a letter to the SEC. The agency issued the rules in 2020, and ISS sued it in litigation that’s still pending.

Charles “Rick” Rule, who signed the 1987 business review letter to ISS, told Bloomberg Law he wasn’t certain the proxy firms have engaged in anticompetitive practices.

The Trump administration may have difficulty pursuing a traditional antitrust case, the Reagan-era antitrust enforcer said. But ISS shouldn’t give too much weight to a nearly 40-year-old document that leaves open the possibility of a future enforcement action, he said.

“I wouldn’t advise a client to really spend a lot of time trying to get” a business review letter, said Rule, chair of Rule Garza Howley LLP. “They’re not really worth the paper they’re written on.”