The White House is reportedly weighing an executive order aimed at reducing the influence of proxy-advisory firms and large index-fund managers in U.S. corporate governance. The proposal specifically targets BlackRock, Vanguard, and State Street — the three largest index fund managers — as well as ISS and Glass Lewis, the dominant proxy advisory firms. Together, these entities control approximately 30% of shares in many major U.S. companies, prompting concerns over centralized decision-making.
Key Provisions of the Order
The proposed executive order would restrict proxy-advisory firms from providing voting recommendations for companies they simultaneously consult, eliminating potential conflicts of interest. It may also limit the distribution of their voting advice to prevent uncritical mass adoption. For index funds, the order would require BlackRock, Vanguard, and State Street to align their voting decisions with the explicit preferences of their clients, rather than making unilateral decisions on behalf of millions of passive investors.
Criticism of Index Fund Power
Business leaders and some lawmakers have long criticized the Big Three index fund managers for wielding outsized influence over corporate elections. Because index funds passively track benchmarks, they effectively hold huge voting blocs on behalf of retail investors, yet often vote against management or push unified ESG agendas. Supporters of the order argue it would return voting power to the actual owners of stocks, breaking what they describe as a "centralized decision-making model."
The Proxy Adviser Debate
Proxy advisory firms influence corporate governance by issuing voting recommendations to institutional investors, but their accuracy, transparency, and potential conflicts have drawn scrutiny. For instance, ISS and Glass Lewis provide consulting services to the same firms they evaluate, creating a "scorer and player" conflict. If enacted, the order would force these firms to separate their consulting and advisory arms to restore market confidence.
Outlook
The White House has not made a final decision on the matter. Analysts suggest that if the executive order is signed, it could reshape U.S. corporate governance and potentially inspire similar moves abroad. However, heavy lobbying from proxy advisory and index fund industries is expected. The coming weeks will see intense debate over the policy in Washington.