Proxy advisor

A proxy advisor is a firm that researches the matters up for a shareholder vote at a company's annual meeting and issues a recommendation on how shareholders should vote. The two dominant firms in this business are Institutional Shareholder Services, usually called ISS, and Glass Lewis, and together they influence a large share of the votes cast at US public companies.

Shareholder votes cover things like electing board members, approving executive pay packages, ratifying auditors, and voting on shareholder proposals covering governance or social issues. Many institutional investors, such as mutual funds and pension funds, hold positions in thousands of companies and do not have the staff to research every ballot item themselves, so they lean on a proxy advisor's recommendation, sometimes following it automatically.

Because proxy advisor recommendations can swing a meaningful share of the vote, companies pay close attention to what ISS and Glass Lewis say about their pay plans, board nominees, and governance practices, and often adjust their proposals in advance to avoid a negative recommendation. Critics argue this gives two private firms outsized influence over corporate governance decisions, while supporters see proxy advisors as filling a research gap that individual institutional investors cannot cover on their own.