Washington, D.C. – The Club for Growth Foundation released a new white paper by Florida Atlantic University’s Dr. Siri Terjesen documenting how the U.S. proxy advisor market is controlled by a foreign-owned duopoly that shapes how corporate America votes, often on autopilot, without ever answering to the more than 100 million Americans whose retirement savings are on the line.
The paper argues the underlying danger isn’t any single political agenda advanced through these channels, but the opacity and lack of accountability built into the system itself. This structural gap leaves the door open to activist campaigns, anti-competitive maneuvering, and even foreign influence over U.S. companies in critical industries. Terjesen then outlines that the executive branch, through rulemaking and enforcement; the legislative branch, through registration requirements and a private right of action; and state-level actors operating independently within their authority can correct these distortions and drive economic growth.
Click here to read the full report from the Club for Growth Foundation and Dr. Siri Terjesen.
EXECUTIVE SUMMARY:
Proxy advisors and activists, far from promoting efficient corporate governance, often distort corporate behavior in ways that harm long-term investment, competitiveness, and economic growth. The more fundamental problem, however, is not any particular ideological agenda advanced through these channels, but the structural opacity and accountability failures of the proxy advisory system itself. These failures include the conflicts of interest baked into the advisory model, the leverage that system provides to outside actors seeking to influence boards, and the absence of fiduciary accountability running through the entire chain from beneficial owner to governance outcome. Section 1 introduces and defines three key actors influencing U.S. corporate governance: proxy advisors, activist investors, and institutional investors; and explores recent trends towards short-termism, market distortions, and less long-term investment. Section 2 outlines funding sources and incentives for activists. Section 3 explores the role, methodology, and influence of proxy advisors. Section 4 examines the intersection of proxy advisors and activists to understand how activists leverage proxy advisors, and the shared incentives and overlapping players. Section 5 describes the many harms to the U.S. economy including short-termism and underinvestment as firms may choose to stay private. Other harms include an over-concentration in the market and weakened competition, as well as the misallocation of capital. There are also increased costs of compliance, reporting, and governance in the form of proxy fights, legal fees, and services. This erosion of accountability and transparency then leads to broader social and economic harms such as negative impacts to employees, innovation, and long-term industry stability. The system can also be weaponized as an anti-competitive instrument, enabling dominant incumbents to use proxy campaigns and institutional investor influence to suppress disruptive rivals they could not defeat through ordinary market competition. More gravely, this same opacity creates a national security vulnerability, offering foreign adversaries a low-visibility channel through which to influence the governance of U.S. companies in critical industries. Section 6 presents empirical evidence and key gaps in methodology, data, and topics. Section 7 summarizes some common arguments in favor of proxy advisors and activists and refutes them. The concluding Section 8 offers policy recommendations organized around three distinct actor audiences: what the SEC and executive branch can pursue administratively; what Congress can enact legislatively, such as registration requirements and a private right of action against proxy advisors, as well as reforms restructuring how passive index funds exercise their voting power so that it reflects the preferences of the beneficial owners who bear the economic interest; and what non-federal actors, including state attorneys general, institutional investors, and market participants, can do independently.