The proxy advisory business is facing potential anti-trust scrutiny from the U.S. Department of Justice (DoJ), which is signalling a shift in its approach to enforcement.
On Wednesday, the DoJ’s anti-trust division announced the withdrawal of a letter that was originally issued to proxy advisory firm Institutional Shareholder Services Inc. (ISS) in 1987, which indicated that the government wouldn’t pursue anti-trust enforcement against the company.
The government indicated that the competitive landscape has changed significantly since the letter was issued.
In a statement, the DoJ noted that when the letter was issued, the proxy advisory business was “in its infancy” — and that it didn’t contemplate the provision of corporate consulting services alongside proxy advisory services.
“ISS’s business model is now in direct conflict with the language in the letter,” the DoJ said, citing its provision of both corporate consulting advice and proxy voting advice — which, it said, gives the firm “enormous influence over corporate governance issues and policies through its proxy voting services.”
The DoJ stressed that “proxy advising is not inherently problematic,” but said it’s withdrawing the anti-trust enforcement letter because it doesn’t “reflect ISS’s current business practices or the antitrust division’s view of those practices.”
Additionally, the DoJ said concentration of market power in the proxy advisory business — with ISS and Glass Lewis & Co. accounting for 90% of the business — raises “significant competition concerns.”