The Justice Department’s Antitrust Division is withdrawing a 1987 Business Review Letter issued to Institutional Shareholder Services, or ISS. The Division said the Letter does not reflect ISS’s current business practices or the Antitrust Division’s current view of those practices. It also cited significant competition concerns arising from concentration in the proxy advisory market.
ISS is a foreign-owned proxy advisory firm that advises clients on how to vote shares they hold on thousands of corporate governance questions each year. The Justice Department said ISS and Glass, Lewis & Co. LLC control more than 90 percent of the proxy advisory market, and that their clients’ holdings represent a significant ownership stake in the largest publicly traded companies in the United States. The Department said this concentration gives the firms substantial influence over corporate governance matters and the policies of those companies.
The 1987 Letter’s Scope
When the Antitrust Division issued the 1987 Business Review Letter, proxy advising was in its infancy. The Letter was based on the understanding that ISS “will offer advice only on matters relating to the exercise of voting rights on issues of corporate governance, and that ISS will not provide advice or engage in discussions with respect to the corporate operations or business activities.” On that basis, the Department stated that it had “no current intention to bring action under the antitrust laws to enjoin the establishment and operation of ISS.”
The Justice Department said the 1987 Letter did not address corporate consulting services, which ISS now offers in connection with proxy voting services. According to the Department, ISS is now providing advice concerning corporate operations, placing its current business model in conflict with the language of the Letter. The Department also said the Letter expressly limited its enforcement position by excluding services directed at corporate operations or activities.
The Antitrust Division emphasized that a Business Review Letter states only the Division’s enforcement intention as of the date it is issued and does not prevent the Division from later bringing an action or proceeding it believes is required by the public interest. The Department said the representation that ISS would not provide or engage in discussions concerning corporate operations or business activities may run contrary to ISS’s current business model.
The Department stated that proxy advising is not inherently problematic and that the lawful exercise of voting rights based on a proxy advisor recommendation does not itself raise competition concerns. It said the withdrawal reflects the Letter’s lack of applicability to ISS’s current practices and the market’s concentration. The Antitrust Division also noted that it filed comments with the Securities and Exchange Commission in 2020 concerning a rulemaking process on proxy voting advice and said it remains committed to promoting competition, reducing barriers to entry, and ensuring compliance with antitrust laws in the proxy advisory market.