Just as the rise of AI (and other factors) seem to have lessened the impact of ISS and Glass Lewis on voting decisions during the proxy season, the DOJ’s Antitrust Division withdrew a position – as stated in a Business Review Letter from 1987 – that it had no intention to bring action under the antitrust laws upon the formation of ISS way back when. The withdrawal is not surprising as the Antitrust Division had previously raised potential competitive concerns in comments submitted to the SEC during its 2020 proxy advisor rulemaking.
Also bear in mind that back in December, as noted in this blog, President Trump issued an order directing the SEC and other agencies to see if ISS and Glass Lewis had violated rules or antitrust law related to their treatment of environmental and social issues. The order also directed the Federal Trade Commission and the Labor Department to consider steps such as new regulations to address his concerns.
Here are seven things noted in the DOJ’s withdrawal press release:
1. DOJ Withdraws 1987 ISS Antitrust Letter – The Justice Department’s Antitrust Division is withdrawing a 1987 Business Review Letter that had indicated it did not then intend to challenge the establishment and operation of ISS under the antitrust laws because circumstances have changed.
2. Proxy Advisor Market Is Highly Concentrated – The DOJ emphasized that ISS and Glass Lewis together control more than 90% of the proxy advisor market. Because their clients hold significant stakes in major U.S. public companies, DOJ says the two proxy advisors exert substantial influence over corporate governance policies and voting outcomes.
3. ISS’s Business Has Changed Dramatically – When theDOJ issued the letter in 1987, proxy advisor services were in their infancy. The letter was premised on ISS providing advice only about voting rights and corporate governance – not advising or consulting for companies.
4. The 1987 Letter Was Never a Permanent Safe Harbor – TheDOJ stresses that a Business Review Letter merely states the Antitrust Division’s enforcement intentions at the time it is issued – so it doesn’t prevent the Division from bringing a future antitrust action when circumstances or its assessment of the public interest change.
5. Corporate Governance Activity Can Have Antitrust Implications – The DOJ notes that beneficial-owner corporate governance advocacy generally can fall within antitrust protections applicable to passive investment – but those protections don’t extend to using common ownership of competing companies to encourage industry-wide output reductions or other anticompetitive conduct.
6. Proxy Advice Itself Is Not the Target – The DOJ expressly says the proxy advisor business is not inherently problematic – nor does the lawful exercise of voting rights based on a proxy advisor’s recommendation, standing alone, create competition concerns.
7. Market Concentration Is a Separate DOJ Concern -Beyond ISS’s changed business model, the DOJ says the extraordinary concentration of the proxy advisor industry itself raises “significant competition concerns.” The withdrawal therefore appears directed both at ISS’s expanded activities and the structure of the proxy advisor market.
Authored by
Broc Romanek