Missouri AG Launches Investigation into Proxy Advisory Firms

Missouri Attorney General Andrew Bailey initiated an investigation this week into two prominent proxy advisory companies, accusing them of violating state consumer protection laws. He claims these companies mislead consumers regarding their priorities, particularly when it comes to putting ideology over investor returns.

In a civil request directed at Glass Lewis and Institutional Shareholder Services (ISS), Bailey argues that proxy voting recommendations should be based strictly on data and research, remaining neutral. However, he points out that documentation from these firms suggests their recommendations often promote Diversity, Equity, and Inclusion (DEI) and environmental initiatives, potentially at the expense of investor profits.

Glass Lewis and ISS are significant players in the U.S. proxy advisory market, controlling around 97% according to a report from the House Financial Services Committee earlier this year. These firms offer voting advice to institutional investors like pension funds and mutual funds during corporate shareholder meetings, covering decisions from board elections to executive compensation.

Bailey expressed concern about what he calls the “invisible power brokers” steering American companies with a liberal agenda, saying that it compromises the interests of countless investors. He described these advisory firms as foreign entities influencing the U.S. economy, asserting that Missouri residents deserve clarity on these practices.

The Attorney General is pushing for legal action to compel compliance from the advisory firms amid his findings. He cited public statements from ISS and Glass Lewis claiming to offer “objective and fair provisions” while simultaneously noting that internal documents highlight commitments to advancing DEI and environmental standards.

“This indicates that Glass Lewis’s claim of delivering ‘research and data’ for informed investment decisions is misleading,” Bailey stated in his enforcement petition against them.

Additionally, Bailey suggested that both firms fail to disclose critical information regarding the significance of DEI and ESG factors when advising on votes. His inquiry seeks various internal communications and documents to clarify whether these firms misled consumers and breached the state’s consumer protection laws.

Bailey’s investigation aligns with similar scrutiny from other states regarding the impact of ESG investing, emphasizing the necessity of transparency in financial advisories.

Neither Glass Lewis nor ISS has commented on the allegations following multiple requests for a response. Earlier this year, Glass Lewis faced a comparable civil investigation from Florida’s Attorney General, which was part of a broader inquiry involving 21 state attorneys general.