Red States Challenge Corporate Diversity Policies
Attorneys general from Republican-led states are currently engaged in legal efforts against diversity, equity, and inclusion (DEI) policies at large corporations.
This past Wednesday, Nebraska’s Attorney General Mike Hilgers initiated a lawsuit against Institutional Shareholder Services (ISS), a proxy voting advisory firm. The lawsuit claims that ISS improperly enforced DEI policies, neglecting its fiduciary obligations for what seem to be ideological aims. Additional states are likely to join this legal action.
This Nebraska lawsuit follows a similar case from Florida last November also targeting ISS for comparable claims.
Hilgers expressed, “ISS convinced Nebraska investors that they were receiving an unbiased investigation; in reality, what they got was advocacy coordinated with the government. Despite facing significant criticism regarding its commitment to objectivity, ISS has made no efforts to alter its approach. Activist groups operate without proper financial scrutiny and are motivated by an unclear ideological agenda.” He added, “In Nebraska, it’s unacceptable to promise one thing and deliver another. We’re stepping in to address this.”
The lawsuit from Nebraska accuses ISS of adhering to environmental, social, and governance (ESG) frameworks without considering the financial interests of its customers. It claims ISS’s role involves researching and advising on voting concerning corporation governance issues, which could range from executive compensation to pension management.
Hilgers’ complaint states, “Even though advisors hold a fiduciary duty to offer sound advice—on which Nebraskans rely to enhance their pension and investment accounts—ISS fails to provide adequate financial analysis to ensure that its advice aligns with the clients’ best financial interests.” The complaint also points out that ISS acknowledges its duty to prioritize clients’ best interests.
Moreover, the document claims that while ISS instructs shareholders to vote in alignment with ESG principles, it also sells various costly services to the same companies it analyzes, “much like a health inspector also selling cleaning services.”
This legal action represents a consumer protection and deceptive practices case against ISS, which is a prominent advisory firm influencing shareholders, including the State of Nebraska. The complaint alleges ISS misrepresents itself, failing to offer unbiased investment guidance while allowing its own ideological considerations to influence its recommendations.
In Florida, Attorney General James Usmeyer filed a lawsuit in November, indicating similar breaches of fiduciary duty by ISS and another firm, Glass Lewis. Florida’s case also points out that ISS has potentially violated state antitrust laws. The situation has attracted attention from multiple states including Alaska, Alabama, Indiana, Iowa, Kansas, and several others.
The Florida lawsuit states, “The defendants’ anticompetitive behavior has severely impacted commercial activity in Florida. They control an estimated 97% of the proxy advisory market, leaving Floridians with no practical alternatives, resulting in financial harm.”
In response to Florida’s claims, ISS and Glass Lewis have denied accusations of operating as a duopoly or wrongfully adopting ESG and DEI practices.
Nebraska also accuses ISS of perpetuating racist practices through its DEI guidelines and processes. The complaint mentions that shareholders have been misled by ISS’s unlawful incorporation of race and ethnicity in candidate evaluations, harming Nebraskans by sacrificing investment profits for ISS’s social and political agenda.
Former President Donald Trump previously issued executive orders targeting DEI initiatives, with implications for both private and governmental sectors. ISS’s actions have often been utilized to push companies towards advancing ESG-related issues like climate change and diversity.
The lawsuit cites various reports suggesting ISS’s motivations are ideological, from encouraging policies related to climate to using racial criteria for diversity.
For instance, the ISS 2026 Benchmark Poll guidelines explicitly recommend shareholders oppose or abstain from voting for companies lacking women on their boards. Will Held from the Office of Consumer Investigations noted that “ISS has portrayed itself as a neutral advisor, while actually advancing a political agenda.” He applauded Nebraska’s attempts to hold ISS accountable.
