Once firmly established in American finance, the proxy advisory industry now faces regulatory threats and AI-driven challenges. To survive, firms must serve customers, not political agendas.

The new year brought new developments in the world of financial services: specifically, the role of artificial intelligence (AI). In January, JPMorgan Chase announced it would replace its proxy advisory services with artificial intelligence. Chief Executive Jamie Dimon even went as far as to say that proxy advisors are “incompetent” and “should be gone and dead, done with.”

For those who have been following issues related to environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI), this is a major event. The two major proxy advisory firms, Institutional Shareholder Services (ISS) and Glass, Lewis, & Co. (Glass Lewis), have been criticized for using their recommendations on shareholder voting to push politically motivated ESG/DEI crusades (sometimes unbeknownst to the shareholders they represent). This has made the industry the target of a recent executive order aiming to increase federal oversight in the proxy advisory industry.

Ultimately, though, the proxy advisory industry was born out of regulation. Further government intervention could invite greater cronyism. If the proxy advisory industry wants to win customers back, it needs to focus on fiduciary obligations, not politics. If federal officials want greater transparency and accountability in the proxy advisory market, they should focus on rolling back unnecessary regulations and simplifying any regulations that remain to encourage a competitive proxy market.

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