"Restoring Integrity and Security to the Visa Process"

1[House Hearing, 119 Congress]2[From the U.S. Government Publishing Office]34                                 ______56          THE PROXY ADVISOR DUOPOLY'S ANTICOMPETITIVE CONDUCT78=======================================================================910                                HEARING1112                               BEFORE THE1314   SUBCOMMITTEE ON THE ADMINISTRATIVE STATE, REGULATORY REFORM, AND15                               ANTITRUST1617                       COMMITTEE ON THE JUDICIARY1819                     U.S. HOUSE OF REPRESENTATIVES2021                    ONE HUNDRED NINETEENTH CONGRESS2223                             FIRST SESSION2425                               __________2627                        WEDNESDAY, JUNE 25, 20252829                               __________3031                           Serial No. 119-273233                               __________3435         Printed for the use of the Committee on the Judiciary3637   GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT3839               Available via: http://judiciary.house.gov4041                        ______4243             U.S. GOVERNMENT PUBLISHING OFFICE44 60-839          WASHINGTON : 20254546                       COMMITTEE ON THE JUDICIARY4748                        JIM JORDAN, Ohio, Chair4950DARRELL ISSA, California             JAMIE RASKIN, Maryland, Ranking51ANDY BIGGS, Arizona                      Member52TOM McCLINTOCK, California           JERROLD NADLER, New York53THOMAS P. TIFFANY, Wisconsin         ZOE LOFGREN, California54THOMAS MASSIE, Kentucky              STEVE COHEN, Tennessee55CHIP ROY, Texas                      HENRY C. ``HANK'' JOHNSON, Jr.,56SCOTT FITZGERALD, Wisconsin              Georgia57BEN CLINE, Virginia                  ERIC SWALWELL, California58LANCE GOODEN, Texas                  TED LIEU, California59JEFFERSON VAN DREW, New Jersey       PRAMILA JAYAPAL, Washington60TROY E. NEHLS, Texas                 J. LUIS CORREA, California61BARRY MOORE, Alabama                 MARY GAY SCANLON, Pennsylvania62KEVIN KILEY, California              JOE NEGUSE, Colorado63HARRIET M. HAGEMAN, Wyoming          LUCY McBATH, Georgia64LAUREL M. LEE, Florida               DEBORAH K. ROSS, North Carolina65WESLEY HUNT, Texas                   BECCA BALINT, Vermont66RUSSELL FRY, South Carolina          JESUS G. ``CHUY'' GARCIA, Illinois67GLENN GROTHMAN, Wisconsin            SYDNEY KAMLAGER-DOVE, California68BRAD KNOTT, North Carolina           JARED MOSKOWITZ, Florida69MARK HARRIS, North Carolina          DANIEL S. GOLDMAN, New York70ROBERT F. ONDER, Jr., Missouri       JASMINE CROCKETT, Texas71DEREK SCHMIDT, Kansas72BRANDON GILL, Texas73MICHAEL BAUMGARTNER, Washington74                                 ------7576               SUBCOMMITTEE ON THE ADMINISTRATIVE STATE,77                    REGULATORY REFORM, AND ANTITRUST7879                   SCOTT FITZGERALD, Wisconsin, Chair8081DARRELL ISSA, California             JERROLD NADLER, New York, Ranking82BEN CLINE, Virginia                      Member83LANCE GOODEN, Texas                  J. LUIS CORREA, California84HARRIET HAGEMAN, Wyoming             BECCA BALINT, Vermont85MARK HARRIS, North Carolina          JESUS G. ``CHUY'' GARCIA, Illinois86DEREK SCHMIDT, Kansas                ZOE LOFGREN, California87MICHAEL BAUMGARTNER, Washington      HENRY C. ``HANK'' JOHNSON, Jr.,88                                         Georgia8990               CHRISTOPHER HIXON, Majority Staff Director91                  JULIE TAGEN, Minority Staff Director92                            C O N T E N T S9394                              ----------9596                        Wednesday, June 25, 20259798                           OPENING STATEMENTS99100                                                                   Page101The Honorable Scott Fitzgerald, Chair of the Subcommittee on the102  Administrative State, Regulatory Reform, and Antitrust from the103  State of Wisconsin.............................................     1104The Honorable Jerrold Nadler, Ranking Member of the Subcommittee105  on the Administrative State, Regulatory Reform, and Antitrust106  from the State of New York.....................................     3107The Honorable Jim Jordan, Chair of the Committee on the Judiciary108  from the State of Ohio.........................................     5109The Honorable Jamie Raskin, Ranking Member of the Committee on110  the Judiciary from the State of Maryland.......................     5111112                               WITNESSES113114Sean Egan, Co-Founder, President, Chief Executive Officer, Egan-115  Jones Ratings Company116  Oral Testimony.................................................     8117  Prepared Testimony.............................................    11118Caleb N. Griffin, Associate Professor of Law, University of North119  Carolina School of Law120  Oral Testimony.................................................    17121  Prepared Testimony.............................................    19122Charles Crain, Managing Vice President, Policy, National123  Association of Manufacturers124  Oral Testimony.................................................    26125  Prepared Testimony.............................................    28126Nell Minow, Chair, ValueEdge Advisors127  Oral Testimony.................................................    41128  Prepared Testimony.............................................    43129130          LETTERS, STATEMENTS, ETC. SUBMITTED FOR THE HEARING131132All materials submitted for the record by the Subcommittee on the133  Administrative State, Regulatory Reform, and Antitrust are134  listed below...................................................    67135136Matrials submitted by the Honorable Jerrold Nadler, Ranking137  Member of the Subcommittee on the Administrative State,138  Regulatory Reform, and Antitrust from the State of New York,139  for the record140    An article entitled, ``Proxy advisory rms: What they are &141        why you should care,'' Dec. 21, 2023, Diligent142    An article entitled, ``Sustainable corporations perform143        better financially, report finds,'' Sept. 23, 2014, The144        Guardian145    An article entitled, ``ESG: Illegal Collusion or Just Good146        Business Sense?'' Jul. 31, 2024, Triple Pundit147A report entitled, ``The Conflicted Role of Proxy Advisors,'' May148  2018, American Council for Capital Formation, submitted by the149  Honorable Harriet Hageman, Member of the Subcommittee on the150  Administrative State, Regulatory Reform, and Antitrust from the151  State of Wyoming, for the record152153          THE PROXY ADVISOR DUOPOLY'S ANTICOMPETITIVE CONDUCT154155                              ----------156157                        Wednesday, June 25, 2025158159                        House of Representatives160161               Subcommittee on the Administrative State,162163                    Regulatory Reform, and Antitrust164165                       Committee on the Judiciary166167                             Washington, DC168169    The Subcommittee met, pursuant to notice, at 10 a.m., in170Room 2141, Rayburn House Office Building, the Hon. Scott171Fitzgerald [Chair of the Subcommittee] presiding.172    Members present: Representatives Fitzgerald, Jordan, Issa,173Cline, Gooden, Hageman, Harris, Nadler, Raskin, Garcia, and174Johnson.175    Mr. Fitzgerald. The Subcommittee will come to order.176    Without objection, the Chair is authorized to declare a177recess at any time.178    We want to welcome everyone to today's hearing on ``The179Proxy Advisor Duopoly's Anticompetitive Conduct.''180    I will now recognize myself for an opening statement.181    Today, we are here to examine a deeply concerning threat to182our system of free enterprise and competitive markets, the183foreign-owned proxy advisor duopoly. Institutional Shareholder184Services, or ISS, and Glass Lewis control more than 90 percent185of the proxy advisor market and can sway, roughly, one-third of186the vote on any shareholder proposal.187    These foreign-owned proxy advisors use their power to act188as de facto regulators of American companies, dictating the189outcome of board elections and major business proposals. They190set their own politically motivated agenda and pressure U.S.191companies to192comply.193    ISS and Glass Lewis are not regulatory agencies subject to194APA requirements. They are not fiduciaries that owe a195responsibility to investors, and they are certainly not elected196officials answering to the American voters. Yet, they have197become unsupervised referees for every major corporate decision198in America.199    One negative recommendation from this duopoly can erase200millions of dollars in market capitalization overnight. Just201ask America's oil and gas producers, who have seen their boards202reshuffled, or the American manufacturers forced to adopt203costly emissions targets not required by any statute or204regulation.205    American companies live in constant fear of a proxy advisor206duopoly that owes no responsibility to anyone. Even more207concerning, both of these gatekeepers are foreign-owned. The208strategic direction of American enterprise is being ghost209written in other countries, then rubberstamped on U.S. proxy210statements. That should concern just about everyone who is here211today who cares about our economic system or America's212competitiveness in the global arena.213    Today's hearing will show how ISS and Glass Lewis wield214power in shaping policy entrenched in their duopoly and215stifling all competition.216    Consider their involvement in the climate cartel. This217committee has already shown how ISS and Glass Lewis colluded218with climate activists, the world's largest asset managers, and219international nonprofits to impose radical ESG mandates on U.S.220companies.221    While this Subcommittee has been encouraged by the progress222made by asset managers to return to its foundational model, the223proxy duopoly remains the largest impediment to ensuring our224capital markets are focused on growing America's retirement225investment accounts.226    Through their recommendations, ISS and Glass Lewis pressure227businesses to slash reliable energy production, adopt DEI228quotas, and reroute capital away from lawful, and profitable229endeavors. This is not responsible for corporate governance. It230is policymaking by proxy, and it is putting politics over231profits.232    What is the cost of this activism? Higher prices for233consumers, lower returns for retirees, and a distortion of234American capitalism.235    If that were not bad enough, ISS and Glass Lewis engage in236a blatant conflict of interest, selling consulting services to237the very companies they issue recommendations against and238punishing the ones that refuse to pay. In a mafia-style239shakedown, companies are forced to pay for the duopoly's240consulting services at the risk of retaliation during the next241proxy season. This is not objectivity or sound corporate242governance. It is a coerced, pay-to-play system that harms243businesses and investors alike.244    How do the proxy advisors maintain their market power? They245don't just issue voter recommendations; they control the very246systems that investors use to vote through their voting247platforms, and through those, the ISS and Glass Lewis make sure248most investors never see another advisor's recommendations249before casting their vote.250    The rival proxy advisors cannot access these systems, and251public companies cannot reasonably avoid them. This is the252exact kind of gatekeeping that our antitrust laws were written253to prevent.254    Because ISS and Glass Lewis have complete control over255these platforms, they can preload each ballot with their own256recommendations. When investors rely on the default settings,257as many do, a massive number of shareholder votes move to258lockstep with the duopoly's ideological agenda. In practice,259that means two private foreign entities can shift approximately260one-third of the shareholder vote on any given proposal, and it261works.262    In 2022, when the New York City Pension Fund filed a263shareholder proposal requesting an audit of Starbucks' labor264practices, the duopoly lent its support, and the proposal265passed with 52 percent.266    That same year, ISS and Glass Lewis supported a resolution267requesting McDonald's conduct a third-party civil rights audit.268That proposal was adopted as well.269    Congress cannot continue to allow foreign-owned proxy270advisors to regulate the practices of American companies. We271certainly cannot allow them to continue strong-arming companies272into purchasing their consulting services.273    That is why I have introduced the Stopping Proxy Advisors274Racketeering Act, which would prevent these advisors from275offering consulting services on the very recommendations that276give them power.277    I would also encourage our competition authorities at the278DOJ and the FTC to take note of this hearing and consider279focusing their attention and resources on studying the280potential anticom-281petitiveness and the effects of this proxy duopoly.282    Congress must make sure that American corporations answer283to shareholders and the U.S. law, not foreign interests.284Today's hearing is the first step toward doing just that.285    Our witnesses today have firsthand knowledge of how this286system operates and the effects it has on American businesses.287    Mr. Sean Egan is the Co-Founder and President at Egan-Jones288Rating Company. Egan-Jones is one of the few proxy advisor289firms competing against this massive duopoly.290    Mr. Charles Crain is the Managing Vice President of policy291at the National Association of Manufacturers. He represents292American manufacturing firms that have experienced the harmful293impacts of the proxy advisor duopoly.294    Mr. Caleb Griffin is an Associate Professor of Law at the295University of North Carolina Law School. He has done extensive296scholarly work on the corporate governance, proxy advisors, and297related systematic reforms.298    I want to thank each witness for appearing before us today299and look forward to your insights.300    I now recognize the Ranking Member, Mr. Nadler, for his301opening statement.302    Mr. Nadler. Thank you, Mr. Chair.303    Thank you to our witnesses for being here today.304    Yet again, our Republican colleagues are pushing baseless305allegations of antitrust violations at the expense of American306consumers. Today's hearing alleges collusion between the two307largest proxy advisors, consulting firms that provide analysis308and recommendations to institutional investors, such as pension309funds and employee benefit plans, on how to vote their shares310at companies' shareholder meetings.311    The Republicans' theory: That these two companies,312Institutional Shareholder Services, or ISS, and Glass Lewis,313work together to push ideological goals over financial reform.314They allege that these proxy advisors advance socially liberal315policies at the expense of their investors, their customers'316return on investment, and their own businesses. Like so many of317the flawed antitrust theories the Republicans have brought318before this Committee, it simply does not hold water.319    Proxy advisors are a vital tool for investors. While deep-320pocketed companies or clients can do assessments of proxy321materials in-house, retail investors and mutual funds rely on322expert independent advice from large proxy firms like ISS and323Glass Lewis.324    Proxy advisors inform their customers about the hundreds,325and sometimes thousands, of complex proposals they may be326called on to consider, helping them to fully exercise their327rights as shareholders of publicly traded companies.328    They do this by providing independent assessments of329company proxy materials and shareholder proposals. Anyone in330the financial services industry understands the value of331trusted information. Customers pay ISS and Glass Lewis, and332sometimes both companies, or even a third service, for333independent assessments of company proxy materials and334shareholder proposals.335    To be clear, no one is forcing these customers to pay for336their services, and no investor is bound by their subscription337to ISS or Glass Lewis to follow their recommendations. The fact338the companies generally do follow their advice is a reflection339of the hard work proxy advisors do to ensure that their340recommendations are in line with the goals and values of their341clients. They do not leverage their market power over their342clients' independent determinations. If their customers do not343like their information or their advice, they can stop344subscribing to ISS or Glass Lewis at any time. We should345remember that it is the investor, not the proxy advisor, that346casts the ultimate vote at shareholder meetings.347    Proxy advisors can be particularly beneficial to pension348funds by allowing them to maximize returns for their349beneficiaries by reallocating resources that would otherwise go350to analyzing the vast quantity of shareholder proposals they351face.352    Take New York, for example. As of 2018, it was the third353largest public pension plan in the Nation and held $207.4354billion in assets. These assets are overseen by the New York355State Controller's Office and are held on behalf of more than356one million members of the New York State and local retirement357systems.358    The Controller's Office, like its counterparts in other359States, takes advantage of proxy advisory services to be better360informed about the companies to which they have invested public361employees' funds. The majority's baseless attacks on the proxy362advisor market may force New York's, and other pension funds,363to expend unnecessary resources by conducting their own364shareholder analyses, which could undermine their ability to365deliver strong returns for their beneficiaries.366    Once again, the Majority has invented a flawed antitrust367theory to justify its attacks on an industry it does not like.368Although the vast majority of investor proposals are369uncontroversial, such as uncontested board elections or the370approval of company-nominated slates of electors, they are a371tiny fraction of issues concerning social governance that the372Majority labels DEI or proposals that, quite reasonably,373consider the risks of climate change in making responsible374investment decisions.375    In each case, proxy advisors conduct an independent376analysis and offer their best advice to their clients, who are377free to make their own independent judgment on how to vote.378Republicans do not like some of the recommendations that these379two proxy advisors have made, and therefore, as has become380commonplace in this Committee, they have launched another381unfounded antitrust investigation designed purely to intimidate382and harass their opponents.383    During the last Congress, the Republicans a fatally flawed384antitrust investigation targeting investment groups that385consider environmental, social, and governance, or ESG,386strategies. Now, the Majority is following the same playbook387and arguing that ISS and Glass Lewis are conspiring to advance388pro-ESG and pro-DEI recommendations, in spite of a lack of389evidence.390    This fact-free investigation is all part of the391Republicans' larger goal of entrenching corporate interests and392conservative political preferences. The Republicans' focus on393alleged collusion between ISS and Glass Lewis not only furthers394their culture war campaign, but also allows them to target and395dilute shareholder rights that would otherwise threaten the396interests of their corporate allies.397    The Majority alleges collusion between ISS and Glass Lewis398because they often issue similar recommendations, but this399reflects incredibly shallow analysis. If you go to multiple400doctors and they each diagnose you with cancer, that is not401evidence of collusion.402    In this case, fair and impartial analyses of market403conditions and best practices are yielding similar conclusions.404There is nothing nefarious about this.405    Proxy advisory firms empower shareholders to exercise their406own judgment and expertise. The market is working as it should.407Yet, Republicans are trying to meddle in it for political408purposes. I urge my colleagues to end this fishing expedition409and to focus on the real issues our constituents face.410    I look forward to hearing from the witnesses, and I yield411back.412    Mr. Fitzgerald. The gentleman yields back.413    I now recognize the Chair of the Full Committee, Mr.414Jordan, for his opening statement.415    Chair Jordan. Thank you, Mr. Chair.416    I want to thank our witnesses for being here today.417    I especially want to thank the Chair for the work he is418doing on exposing this duopoly and what they have been up to.419This is an important hearing and an important subject.420    With that, I yield back.421    Mr. Fitzgerald. The gentleman yields back.422    I now recognize the Ranking Member of the Full Committee,423Mr. Raskin, for his opening statement.424    Mr. Raskin. Mr. Chair, thank you very much.425    Today's hearing is another installment in what I'm thinking426of as a series of nonantitrust antitrust hearings. Because my427Republican colleagues seem so confused on the subject, I think428a basic primer on what antitrust means may be in order.429    The Supreme Court has compared the antitrust laws to the430Magna Carta of free enterprise that is as important to the431preservation of economic freedom in our free enterprise system432as the Bill of Rights is to the protection of fundamental433personal freedom.434    Robust antitrust enforcement is vital for everyone in435American society--from consumers to workers, to innovators, and436to citizens. Antitrust is fundamentally about making sure the437marketplace is an open and fair terrain for companies to438innovate and compete.439    Now, like Donald Trump, our GOP colleagues seem to think440that antitrust is about Congress and the President picking441business favorites to help and punishing business companies442they disfavor. That has got nothing to do with antitrust, free443markets, or fair competition. That is just gangster-State444economics. That is how a business operates in authoritarian445societies.446    Our colleagues accuse two proxy advisors, ISS and Glass447Lewis, of colluding to advance a progressive agenda when they448make recommendations to their clients in advance of shareholder449meetings. Well, of course, on the Antitrust Subcommittee, we450should be concerned about collusion in the market. As Justice451Scalia warned, ``the supreme evil of antitrust is collusion.''452That's Verizon v. Trinko.453    Collusion between competitors with the intent to fix454pricing is per se illegal. You would think that, if our455colleagues were going to use their bully pulpit to charge two456companies with the ``supreme evil of antitrust,'' they would457come armed with mountains of compelling, unassailable, and458ironclad evidence. Even their own witnesses are not alleging459collusion.460    It reminds me of when the Oversight Committee had an461impeachment hearing against President Biden in the last462Congress, and none of their expert witnesses could identify463evidence of impeachable high crimes and misdemeanors. Instead,464they couldn't find sufficient quantum of evidence.465    It is not like my colleagues haven't been warned. The466Supreme Court has gone out of its way to explain, quote, ``An467allegation of parallel conduct and a bare assertion of468conspiracy will not suffice,'' to constitute an antitrust469violation. That is exactly what our colleagues are doing here.470They are making allegations based on the independent market471actors sometimes taking parallel positions, and then, asserting472collusion without any proof. I don't believe that there is even473an assertion of price fixing going on.474    Now, you might chalk this up to just confusion about475antitrust law and an innocent mistake, but our colleagues are476using these allegations to intervene in and distort the market,477and to target ideas and actors they simply disfavor; they don't478like.479    They did this last Congress by targeting carbon-conscious480investors for daring to use their rights as shareholders to481push oil companies to invest in renewable fuel and position482these companies to be more competitive in the face of the483pervasive threat of climate change--a global emergency that,484obviously, will have a direct effect on the bottom line of485fossil fuel companies.486    Now, the majority wields this same empty theory of487antitrust harm against proxy advisors. Why? Simply because488these companies help shareholders, including those committed to489responsible investing, maximize their rights as part owners of490publicly traded companies. Antitrust collusion is now the all-491purpose GOP name for any market activity or commercial or492political speech that they disagree with.493    The proxy advisors are plainly responding to a marketplace494demand. If they weren't, they wouldn't be in business. They are495responding to the needs and the requests of their customers.496There is an increased appetite among shareholders to invest497responsibly. Some don't want to invest in businesses498contributing to climate change or to gun violence. Some don't499want to invest in companies doing business with Iran or Russia,500or other repressive countries. These investors, proxy advisors'501clients, want to exercise their rights as shareholders to push502for changes to corporate governance and policy in the companies503where they own shares. They have got every right to do so.504    Proxy advisors like ISS and Glass Lewis go through hundreds505of thousands of pages of proxy materials and give their506customers their independent assessment of shareholder507proposals, helping them decide whether to support or oppose508them. Their only role is to provide information for their509clients to enable them to exercise their rights. These510companies have every right to issue their assessment of these511proposals. It is protected as commercial speech, just as their512clients have a shareholder right to propose, consider, and vote513on them.514    To be clear, the issues they are called to evaluate are not515just progressive shareholder initiatives. True, my colleagues516seem worked-up about shareholder initiatives that call for517things like an audit of child labor practices in the meat518packing industry or an assessment of working conditions in519commercial warehouses that have an extraordinary rate of520workplace injuries.521    The exercise of shareholder rights is not, and has never522been, a one-sided partisan exercise. Over the past several523years, there has been record growth in shareholder proposals524from conservative groups, like the proposal at Disney to demand525that the company sever its ties with the Human Rights Campaign526and with different kinds of gay and lesbian policies. They have527got every right to do that. That proposal failed, just like528many progressive shareholder proposals failed, and even if it529succeeded, let me remind you that these proposals are entirely530nonbinding. They can give expression to shareholder of concerns531of the right to left of the center, but they can't force a532company to do anything at all.533    What is the real problem here? Why are we repeating a534hearing that the Financial Services Committee just had at the535end of April? Why are we concerning ourselves with supposed536conflicts of interest, when the SEC has already addressed them537with rules proposed under Trump and kept under Biden?538    We are here because it seems the Trump Administration539doesn't seem to believe in allowing voters to be informed.540Instead, they are making it harder for voters to learn about541the issues and tougher for voters to cast their ballots,542especially when they are likely to disagree with them.543    Shareholder rights, like citizen rights, are protected by544law. This empty theory of antitrust harm infringes on the free545market, on the rights of shareholders, and on the ability of546shareholders to be informed about what companies are doing.547Antitrust should not be used to censor political or commercial548speech, to distort markets, or to disenfranchise shareholders.549This is censorship masquerading in the language of antitrust550analysis.551    I thank my colleagues, and I yield back to you, Mr. Chair.552    Mr. Nadler. Mr. Chair?553    Mr. Fitzgerald. The gentleman yields back.554    Mr. Nadler. I have two unanimous consent requests.555    Mr. Fitzgerald. State your requests.556    Mr. Nadler. OK. I ask unanimous consent to enter into the557record a summary provided by ESG strategeies Diligent, dated558December 21, 2023, which lists the new competitors expanding559the proxy voting advice industry in the United States: Egan-560Jones Proxy Services, Segal Marco Advisors, and ProxyVote Plus.561    I have a second unanimous consent request. I ask unanimous562consent to enter into the record an article from The Guardian563titled, ``Sustaining Corporations Perform Better Financially,564Report Finds,'' which finds that, quote, ``Corporations that565are actively managing and planning for climate change secure an56618 percent higher return on investment than companies that567aren't--and 67 percent higher than companies who refuse to568disclose their emissions.''569    This puts to bed the tired and false talking about the570sustain-571ability- and diversity-focused shareholder proposals hurt the572savings of everyday people. Quite the opposite is true.573    Mr. Fitzgerald. Without objection. We will now introduce574today's witnesses.575    Mr. Sean Egan. Mr. Egan is Co-Founder, President, and CEO576of Egan-Jones Company, a credit-rating and proxy advisor firm.577Prior to founding Egan-Jones, Mr. Egan was a commercial and578investment banker in the financial industry.579    Professor Caleb Griffin. Mr. Griffin is an Associate580Professor of Law at the University of North Carolina School of581Law. His research focuses on business organizations, contracts,582corporate law and governance, secured transactions, and583technology and the law.584    Mr. Charles Crain. Mr. Crain is the Managing Vice President585of Policy at the National Association of Manufacturers, where586he oversees the association's advocacy efforts on behalf of587manufacturers in America. He previously was the Vice President588of Domestic Policy at NAM, working at the Biotechnological589Innovation Organization, and as a House and Senate staff590member.591    Ms. Nell Minow. Ms. Minow is the Chair of ValueEdge592Advisors, an institutional investor advisory firm. She593previously was the Co-Founder and Director of GMI Ratings, and594was editor and co-founder of its predecessor firm, The595Corporate Library.596    We welcome our witnesses and thank them for appearing597today.598    We will begin by swearing you in. Would you please rise and599raise your right hand?600    Do you swear or affirm under penalty of perjury that the601testimony you are about to give is true and correct to the best602of your knowledge, information, and belief, so help you God?603    Let the record reflect that the witnesses have answered in604the affirmative.605    Thank you. You can please be seated.606    Please know that your written testimony will be entered607into record in its entirety. Accordingly, we ask that you608summarize your testimony in five minutes.609    Mr. Egan, you may begin.610611                     STATEMENT OF SEAN EGAN612613    Mr. Egan. Chair Fitzgerald, Ranking Member Nadler, and the614Members of the Subcommittee, thank you for the opportunity to615testify today.616    I'm Sean Egan, Co-Founder and Managing Director of Egan-617Jones. Egan-Jones has two primary businesses, a credit-rating618agency registered with the SEC and a proxy advisory business.619I'm testifying today on behalf of the proxy advisory business.620    The Egan-Jones Proxy Services was established in 2002 and621has become the leading independent proxy advisor. Unlike the622other two major proxy advisory firms, Egan-Jones does not offer623corporate consulting services, which creates an unmanageable624conflict of interest. In our opinion, disclosures and perceived625firewalls do not sufficiently mitigate the inherent conflicts626of interest. Additionally, unlike our foreign-owned627competitors, Egan-Jones Proxy Services is owned and operated in628the United States. U.S. capital markets are not well-served by629the duopoly of ISS and Glass Lewis, whose combined market share630exceeds 90 percent.631    Our clients rely on our recommendations for voting on632corporate matters, such as director elections, compensation,633M&A, and other events. While we offer several methodologies,634our fastest-growing one is our wealth-focused approach. That is635because Egan-Jones believes the vast majority of investors are636investing in savings and retirement. The policy is not board-637aligned because directors with poor impact on shareholder638returns will be opposed. Policymakers should focus on639legislative and regulatory proposals that bring competition to640the marketplace by focusing on the following recommendations,641which can be summarized as the 4Ps:642643    (1) LPlatforms. Make them neutral. Currently, ISS provides644a voting platform that is used by the bulk of institutional645investors. For years, Egan-Jones has tried to be included646widely in the platform--with little success. The platform647carries Egan-Jones' recommendations, but only if a client648explicitly requests those recommendations. For all other649potential customers, ISS hides Egan-Jones as an option.650Further, ISS refuses to provide critical information such as651voting deadlines, making it difficult for us to service652clients.653    (2) LPurse. No one can serve two masters. Proxy advisory654firms should not provide corporations with governance,655executive compensation, DEI, and ESG ratings, thereby creating656an unmanageable conflict of interest. A wall between the657businesses does not address the underlying conflict, as ratings658or assessments from the consulting side are, typically, used by659the proxy advisory side. Companies feel obligated to purchase660consulting services from ISS and Glass Lewis, so that they will661receive better outcomes at the ballot box. Others view this as662a shakedown.663    (3) LPolicies. Expand access to alternative proxy advisory664methodologies via voting choice platforms. Policymakers should665continue encouraging these reforms, so investors have great666choices.667    (4) LPractices. End robo-voting and other dubious668practices. Shareholders' votes are critical to the proper669functioning of the economy. Abdicating that responsibility670should be disallowed. Examples of dubious practices including:671(a) Always voting with management, or (b) voting in a manner672that replicates the voting of other investors, which is also673known as mirror voting.674675    I commend Representative Fitzgerald's draft legislation,676the Stopping Proxy Advisors Racketeering Act. The legislation677would prohibit proxy advisory firms from offering consulting678services.679    In conclusion, the 4Ps make this market dysfunctional and680impede competition.681682    (1) LPlatform. ISS's platform is pervasive, and access is683restricted. Additionally, information needed for competing684proxy advisors should be readily available.685    (2) LPurse. Charging corporations for consulting services686creates an unmanageable conflict of interest.687    (3) LPolicies. Expand access to alternative proxy advisors'688methodologies via voting choice programs.689    (4) LPractices. End robo-voting and other dubious690practices.691692    These factors impede the market and make it more difficult693for Americans to save for a meaningful retirement.694    Thank you again for inviting me to testify.695    [The prepared statement of Mr. Egan follows:]696697GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT698699    Mr. Fitzgerald. Thank you, Mr. Egan. Professor Griffin, you700may begin.701702                 STATEMENT OF CALEB N. GRIFFIN703704    Mr. Griffin. Chair Fitzgerald, Ranking Member Nadler, Chair705Jordan, Ranking Member Raskin, and distinguished Members of the706Subcommittee, thank you very much for inviting me to testify707this morning.708    Proxy advisory firms wield substantial influence over709corporate governance, acting as pivotal intermediaries between710publicly traded corporations and institutional investors. In711our classic archetype of the corporation, shareholders possess712both economic and voting rights. Today, however, investors713often provide monetary investment, while firm-level voting714rights reside with another party. This introduces additional715complexity into the governance process. How can intermediaries716vote for such a large number of shares? How do we ensure that717they possess strong incentives to vote them well?718    Proxy advisors have become the de facto answer to the719former question, and I would suggest that we have yet to720adequately solve the latter. Owners have strong incentives to721care about the governance impact of various policies because it722is their own money on the line, but this simply isn't true for723many intermediaries. Proxy advisors, in particular, do not724capture any of the gains or suffer any of the losses from share725price movements. They are effectively insulated from the726consequences of their governance decisions, either good or bad.727This insulation weakens the responsiveness to investor728concerns, generates potentially significant conflicts of729interest, and may lead to misalignment with investor730priorities.731    In my view, the key issues in the proxy advisor industry732can be consolidated into three broad categories: Concentration,733competition, and conflicts.734    First, concentration. As others have noted, just two firms,735Institutional Shareholder Services and Glass Lewis control736roughly 90 percent of the market for proxy advisory services.737This, essentially, duopolistic structure significantly limits738the range of governance opinions available to investors, and it739may generate biases or amplify inaccuracies, potentially740diminishing the health of our capital markets.741    Moreover, the concentrated nature of the proxy advisor742industry enhances the influence of the major proxy advisory743firms over firm-level voting outcomes. Research has suggested744that ISS and Glass Lewis hold considerable sway over745institutional investors' voting behavior. For instance, equity746plan proposals, uncontested director elections, and proxy747contests receive 17 percent, 18 percent, and 73 percent more748votes in favor, respectively, when supported by ISS. Likewise,749a favorable recommendation from Glass Lewis generates 16750percent more support for say-on-pay votes, 12 percent more for751equity plan proposals, and 64 percent more for proxy contest752ballot items.753    Second, the proxy advisory industry would significantly754benefit from enhanced competition. A key point here is that it755is not only the number of meaningful competitors that may be756deficient, but also the nature of that competition. Currently,757proxy advisors often cater to the needs and preferences of758intermediary agents rather than those of the actual investors759and beneficiaries whose retirements are at stake.760    Third, and perhaps most critically, proxy advisors suffer761from important conflicts of interest. For instance, both ISS762and Glass Lewis offer certain consulting services, whereby763these advise clients on governance issues, and subsequently,764influence voting outcomes on those very issues. Thus, major765proxy advisors may occupy multiple roles, playing the part of766advisor and arbiter.767    For example, consider governance decisions related to768executive compensation. ISS issues voting recommendations on769thousands of say-on-pay votes that occur every year. Research770suggests that a negative recommendation from ISS on say-on-pay771proposals is associated with a 25 percent lower rate of support772overall--an impact that, in the words of one scholar, is773indicative of ``strong influence of overshielded votes.''774    Companies seeking to garner a favorable recommendation from775ISS may be motivated to purchase a service that it calls776``executive compensation solutions.'' For an undisclosed fee,777companies can consult with a compensation expert to design,778monitor, and communicate executive pay programs. The fact that779ISS is judging the merits of the same executive compensation780packages it was paid to advise heightens the risk of781problematic conflicts of interest. Companies and investors may782perceive, accurately or not, that paying a proxy advisor for783governance consulting will influence their voting784recommendations. Although the dominant proxy advisors may take785internal measures to help ameliorate this challenge to the786objectivity of the recommendations, there is, to my knowledge,787no clear regulatory protection.788    Much as Sarbanes-Oxley addressed similar conflicts of789interest in the context of accounting firms, some of the draft790legislation in Congress today, such as the bill by Congressman791Fitzgerald, aims to provide analogous protection in the proxy792advisory context.793    In my view, the disclosure and prevention of conflicts of794interest in our financial markets is not a partisan issue, but795rather an important protection for investors, companies, and796the American capital markets.797    Thank you very much for inviting me to testify and I look798forward to your questions.799    [The prepared statement of Mr. Griffin follows:]800    GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT801802    Mr. Fitzgerald. Thank you, Professor Griffin. Mr. Crain,803you may begin.804805                   STATEMENT OF CHARLES CRAIN806807    Mr. Crain. Good morning, Chair Fitzgerald, Ranking Member808Nadler, Ranking Member Raskin, and the Members of the809Subcommittee.810    My name is Charles Crain, and I'm the Managing Vice811President of policy at the National Association of812Manufacturers.813    Manufacturers have long understood that the proxy firm814duopoly of ISS and Glass Lewis has a significant and damaging815impact on their businesses. Proxy firms' outsized influence816dictates corporate decisions and it distracts from the long-817term best interests of Main Street shareholders. Yet, these818firms remain stubbornly unregulated.819    ISS and Glass Lewis have cornered the market on proxy820voting advice and they have not been shy about using their821market position to create a feedback loop of power and822influence--at the expense of investors saving for a new home, a823child's education, or a secure retirement.824    Let's start with the facts of this duopoly. ISS and Glass825Lewis together control 97 percent of the proxy advice market.826This dominant position insulates the firms from827accountability--to the point where the two market players, as828has been discussed, have significant conflicts of interest and829are widely recognized as offering error-filled, opaque, and830one-size-fits-all advice, and yet, they still enjoy market831dominance. In other words, when two entities run the show, they832can run it however they please, and everyday people are the833ones who pay the price.834    Bolstering this power are the firms' voting platforms. Now,835these platforms do provide a legitimately useful service. They836connect institutional investors to the back-end of the proxy837voting system. ISS and Glass Lewis use their proxy voting838platforms to push their clients toward their proxy voting839research and recommendations. They will even prefill the840platform with their preferred votes, and then, robo-vote an841investor's shares on their behalf. This system, which would be842virtually impossible for a new market entrant to replicate,843leverages the utility of these platforms to push clients toward844their voting recommendations.845    Now, let's turn to those voting recommendations themselves.846    First and foremost, these recommendations are powerful. ISS847and Glass Lewis can swing the outcome of shareholder votes--848meaning they, effectively, set corporate governance standards849for the entire market. This usurps the authority of corporate850boards and of the SEC, and it ensures that investors need to851hire proxy firms and that companies need to pay them.852    Further, proxy firms' recommendations are both complicated853and opaque. This effectively forces companies to purchase those854consulting services to understand the firms' complex855methodologies. The proxy firms' standards appear designed to856increase their own market power, often at the expense of857companies and shareholders.858    Take, for example, proxy firms' insistence on annual say-859on-pay votes, when Congress has made explicitly clear that860annual votes are not required. Who benefits from forcing annual861votes more than ISS and Glass Lewis, who will be paid to862provide voting recommendations for each and every one of these863votes across thousands of public companies every single year?864    Similarly, on some issues, the proxy firms require865companies to meet a supermajority vote threshold to avoid a866future negative recommendation. The easiest way to fail to meet867that threshold, of course, is to have ISS or Glass Lewis868recommend against the company. A negative vote recommendation869can depress shareholder support, which, in turn, leads to more870negative vote recommendation, which further depresses871shareholder support on more issues and more nominees, and on872and on and on--and all the while, the company, manufacturers873across the country are being pitched by proxy firms' consulting874services to just pay up and avoid this costly and self-875perpetuating cycle.876    These complicated fact patterns keep emerging because proxy877firms operate with conflicts of interest baked into their878business models. One-half of a proxy firm operating a879consulting service to help companies avoid a negative880recommendation from the other half of the some proxy firm is a881per se risk to investors--raising the specter which we have882seen time and time again of recommendations that are designed883to enrich the firms rather than benefit investors.884    That is why manufacturers support Chair Fitzgerald's885legislation to prevent proxy firms from offering supposedly886neutral proxy voting advice if they have a conflict of interest887poisoning their objectivity. Manufacturers understand the888stakes of getting this right, and we stand ready to help889Congress rein in the proxy firm duopoly and institute much-890needed guardrails that address proxy firms' conflicts of891interest, their errors, their robo-voting, their one-size-fits-892all standards, their ESG agendas, and more.893    Thank you.894    [The prepared statement of Mr. Crain follows:]895    GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT896897    Mr. Fitzgerald. The gentleman yields back. Ms. Minow, you898are not recognized for five minutes.899900                    STATEMENT OF NELL MINOW901902    Ms. Minow. Thank you very much, and thanks to the Committee903for including me.904    When I worked in the Reagan Administration, one of the905things that I was proudest of was our commitment to free906markets and to reducing nanny-state-type regulations. I feel907like I'm a little bit through the looking glass here today908because it is very disappointing to me to hear the Republicans909on this Committee want to interfere with the most robust free910market evolution of a product that I could possibly imagine.911    It meets every one of the criteria that I learned at the912University of Chicago. The proxy advisory firms rose to meet a913need that began in the 1980s. In fact, I was there at the914beginning of ISS. We intended to have a different product915entirely, and everybody we talked to said, ``What we want is916proxy voting recommendations.''917    Nobody has to buy it. Nobody has to follow their918recommendations. They are purchased by the most sophisticated919financial professionals on the planet. What I'm hearing here is920a lot of vague allegations that are not supported.921    If ISS and Glass Lewis are too powerful, corporate America922should be popping champagne corks. They recommend votes with923management 96 percent of the time. I would love to hear from924America's corporations why four percent of the time a925suggestion that perhaps they might disagree with management is926too much. It is very disappointing to me to hear corporations927say they don't want to hear from their shareholders and they928don't want independent advice to be available to them.929    If there are more votes against pay packages because of930proxy advisor recommendations, that is because those pay931packages have been determined by market forces to be too much.932I suggest you look at Mr. Zaslav's pay package, which did get a933majority against. Remember, though, those votes, as Mr. Raskin934pointed out, are nonbinding. Even a 100 percent vote in favor935of whatever shareholder proposal that you don't like, if it is936about the environment or ESG, a company doesn't have to follow937it and companies do ignore these votes, even a 52 percent vote,938all the time. Why they wouldn't want this very low-pressure939mechanism for delivering the comments about shareholder940concerns, I do not understand.941    I hear terms like ``dictates'' and ``stubbornly942unregulated.'' The last people who need the nanny State943stepping in are these financial professionals, the largest944investors. Proxy advisor services are not sold to individual945households. There are new entrants all the time. I personally946use one that is nonprofit and free for my accounts. We have947ones that are more pro-ESG. We have ones that are explicitly948anti-woke, anti-ESG.949    Public corporations are currently devoting enormous amounts950of money and effort--and I might say creativity--to coming up951with ways to cutoff shareholder oversight and including952restricting the sole sources of independent research on matters953presented to them for their approval. Really, the worst you can954come up with is that they want to review pay annually instead955of every three years. Congress gave shareholders the right to956choose whether they wanted to look at say-on-pay annually or957every three years. They choose annually. ISS doesn't get paid958by the vote. It is more work for them for the same pay. That is959just completely wrong.960    I strongly urge this Committee to allow the free market to961operate.962    Thank you very much.963    [The prepared statement of Ms. Minow follows:]964    GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT965966    Mr. Fitzgerald. Thank you very much.967    I will now proceed under the five-minute rule with968questions.969    The gentlewoman from Wyoming--970    Mr. Nadler. Mr. Chair, I have a unanimous consent request.971    Mr. Fitzgerald. The gentleman is recognized. Can we hold972some of these until the end, I guess?973    Mr. Nadler. OK, after this one.974    Mr. Fitzgerald. OK, go ahead.975    Mr. Nadler. I ask unanimous consent to enter into the976record an article dated July 31, 2024, entitled, ``ESG: Illegal977Conclusion or Just Good Business Sense?'' which explains how,978quote,979980        Limiting investors' ability to assess risk and reducing981        competition for financial services is detrimental to investors'982        returns in these, and the people who are paying the price for983        this are the constituents--the firefighters, the police984        officers, and the teachers.985986    Mr. Fitzgerald. Without objection. The gentlewoman from987Wyoming is now recognized for five minutes.988    Ms. Hageman. I'm sorry, but this sounds like a racket. I989can just hear, ``That's a nice company you have there. It would990be a tragedy if something happened to it.''991    Wow, about 70 percent of publicly traded equity shares are992held by institutional investors rather than individuals. ISS993and Glass Lewis control at least 90 percent of the proxy994advisor market, exerting influence over $20 trillion in995investor assets. Glass Lewis is owned by two Canadian financial996institutions and ISS by a German corporation. Yet, together,997they dictate votes for most of America's publicly traded998companies.999    Mr. Egan, should foreign-owned businesses hold that kind of1000power and control over U.S. companies?1001    Mr. Egan. Thank you very much for the question.1002    In our opinion, for capital markets to work properly, you1003need a diversity of views. Perhaps the biggest concern that1004exists in the market is that it is dysfunctional in the sense1005that the two dominant proxy advisory firms are not independent;1006that they are using the recommendations and the scores and the1007ratings on the consulting side to drive their proxy advisory1008votes. If they charged nothing for their proxy advisory1009services, and basically, using a monopoly on one area--that is,1010with the platforms--to extend to the other area, they would be1011just fine.1012    There is relatively little competition because there is1013blockage, and those four items that I had mentioned really1014should be examined to keep the markets competitive.1015    Ms. Hageman. Well, do you think that most Americans know1016about this foreign ownership or what these companies actually1017do?1018    Mr. Egan. I highly doubt it.1019    Ms. Hageman. OK. Mr. Crain, with this much control, there1020must be an understanding of whether proxy advice actually1021aligns with investor preferences, as these firms grow in power1022and influence. In your experience in working with U.S.1023manufacturers, have these ideology-driven directives, based in1024climate change policies, the DEI agenda, ESG policy, and more,1025strengthened their competitiveness or added unnecessary costs1026and constraints?1027    Mr. Crain. Thank you for that question, Congressman--1028Congresswoman. Excuse me.1029    I think that the key thing to remember here is that the1030proxy advisor firms don't have a fiduciary duty to the1031underlying Main Street investors who are saving for a secure1032retirement via these larger institutional investors. When they1033are making these voting recommendations and casting investors'1034votes through their robo-voting services on their behalf, they1035have no underlying obligation to those everyday Americans.1036Whether that is on everyday corporate governance topics or on1037some of the ESG matters that you have described, they have1038their own set of beliefs about how corporate America should be1039run and they don't have any obligation to align those beliefs1040with the financial needs of everyday Americans saving for1041retirement in the public market.1042    Ms. Hageman. Well, listening to the testimony from the four1043of you, that is the thing that struck me the most; is that this1044seems to be a fundamental violation of these companies'1045fiduciary responsibilities to maximize profits for their1046shareholders. Do you agree with that, Mr. Crain?1047    Mr. Crain. I do, and that is a question that has been1048raised at the SEC, in fact, of whether and to what extent the1049institutional investors who blindly follow these proxy firm1050recommendations, or, indeed, allow votes to be robo-vote1051without even reviewing what the proxy firms are suggesting,1052whether and to what extent they are complying with their1053fiduciary obligations, as managing assets on behalf of everyday1054Americans saving for retirement.1055    Ms. Hageman. Mr. Griffin, I would like to turn to you. If1056proxy advisors are making recommendations to asset managers who1057vote with other people's money, and these recommendations are1058politically driven, then is the system actually protecting the1059interests of the real owners, such as the retirees and savers,1060or is it really furthering the agenda of these other1061organizations?1062    Mr. Griffin. Thank you for the question.1063    There is a risk that we prioritize different interests than1064those of the true investors, those individuals who are working1065people, teachers, firefighters saving for their retirement, and1066those interests may diverge from the intermediaries who hire1067the proxy advisory firms. I think that is a risk.1068    Ms. Hageman. Has the market share of ISS and Glass Lewis1069allowed for this shift from protection of real investor1070interest to what seems to be a more politically driven agenda,1071Mr. Griffin?1072    Mr. Griffin. That is certainly possible. That the market1073concentration and market power that they have has created--1074essentially, put them in a quasiregulatory role, in some ways1075allowing them to determine things like influence from1076materiality standards, standards for director independence, and1077effective voting thresholds for board response to shareholder1078proposals and--1079    Ms. Hageman. Well, thank you, gentlemen and Ms. Minow, for1080being here today.1081    I ask unanimous consent to introduce into the record a1082document entitled, ``The Conflicted Role of Proxy Advisors,''1083from May 2018.1084    Mr. Fitzgerald. Without objection.1085    Mr. Fitzgerald. The gentlewoman yields back.1086    Ms. Hageman. Thank you.1087    Mr. Fitzgerald. The Ranking Member is now recognized for1088five minutes.1089    Mr. Nadler. Thank you, Mr. Chair.1090    Ms. Minow, you worked in the DOJ's Antitrust Division. Is1091there any evidence that ISS and Glass Lewis are colluding?1092    Ms. Minow. There is none.1093    Mr. Nadler. Is there any evidence that they are fixing1094prices?1095    Ms. Minow. There is no evidence of that.1096    Mr. Nadler. Is there any evidence that they are blocking1097new entrants?1098    Ms. Minow. No. There are new entrants all the time, as I1099mentioned, including two nonprofits and two--one started by1100Vivek Ramaswamy--that are explicitly anti-woke.1101    Mr. Nadler. Typically, when competitors collude, they do so1102to raise prices. The majority, however, is alleging that ISS1103and Glass Lewis are colluding to push ESG and DEI agendas. At1104the same time, the Majority is arguing that ESG and DEI issues1105are detrimental to the companies that their clients are1106investing in. If both things are true, wouldn't this collusion1107mean that investors are getting bad advice from proxy advisors,1108and that, therefore, the investors would be incentivized to1109change providers?1110    Ms. Minow. Absolutely. Let's remember that the clients of1111the proxy advisor services are enormous, multimillion-dollar1112financial firms who are very sophisticated and who are1113completely driven by shareholder returns. Furthermore, ISS and1114Glass Lewis--and I presume all the other proxy advisory firms--1115are constantly in touch with their clients saying, ``Do we need1116to change our policies to better reflect your priorities?'' The1117people who purchase those services are market-driven, and the1118people who provide those services are market-driven to meet1119their needs.1120    Mr. Nadler. Thank you.1121    Are there competitors that these investors could turn to?1122We are not seeing a retreat from these firms, isn't that1123correct?1124    Ms. Minow. That's right. If Sean's firm wants to compete1125with ISS and Glass Lewis, he should probably try to produce a1126better product.1127    What I really don't understand is why he thinks he has a1128right to the platform that they built with their time, with1129their energy, and with their expertise. It would be like me1130saying, ``I'd like to send my packages through Amazon trucks1131because they have got this great infrastructure.'' If he wants1132to compete with that, let him build his own; make it better.1133    Mr. Nadler. Assuming that the Majority is right, these1134actions would, presumably, undermine ISS and Glass Lewis' own1135bottom lines and revenue, and therefore, would hurt these firms1136and damage their position in the market. There is no evidence1137of that, is there?1138    Ms. Minow. There is no evidence of that.1139    Mr. Nadler. Ms. Minow, the Majority also claims that ISS1140and Glass Lewis prevent new market entrants because they1141control voting platforms, as well as provide advisory services.1142Is this true?1143    Ms. Minow. No. They developed their own platforms, just as1144if you want to log into your account on the bank at a bank or a1145brokerage house. They have created their own platforms, and1146anyone else can create theirs as well.1147    Mr. Nadler. Investors are not forced to use the voting1148platforms, and thus, they could get advice from ISS and Glass1149Lewis, and then, use a separate entity's voting platform, is1150that correct?1151    Ms. Minow. That is correct. ISS told me that, if enough of1152their clients asked to have Sean's firm on their platform, they1153would add it, but nobody is asking for it.1154    Mr. Nadler. Thank you.1155    This hearing is yet another example of my colleagues across1156the aisle weaponizing an empty theory of antitrust harm to come1157after free speech and the exercise of shareholders' right,1158simply because they disagree with the content of that speech1159and the exercise of those rights. It is a dangerous use of this1160Committee's power, and I urge my colleagues to reconsider.1161    I yield to the Ranking Member of the Full Committee.1162    Mr. Raskin. Thank you very much, Mr. Nadler.1163    Mr. Egan, does your firm--you are, essentially, a1164competitor to the two big firms we are talking about, is that1165right?1166    Mr. Egan. Thank you for your question, and the answer is1167yet.1168    Mr. Raskin. OK. Does your firm collude with other proxy1169advisors?1170    Mr. Egan. No.1171    Mr. Raskin. Do you have an ESG policy for the people you1172advise?1173    Mr. Egan. We do.1174    Mr. Raskin. Do you have a non-ESG policy for the people you1175advise?1176    Mr. Egan. We don't label it as non-ESG. We have a wealth-1177focused policy we--1178    Mr. Raskin. OK. If I want ESG, I could come to you? If I1179don't want ESG, I could come to you? I have got alternatives,1180options?1181    Mr. Egan. That is accurate.1182    Mr. Raskin. Why do you set up as an array of options like1183that?1184    Mr. Egan. To provide investors with a choice.1185    Mr. Raskin. You are meeting the needs and desires of your1186clients and meeting market demand?1187    Mr. Egan. That's accurate.1188    Mr. Raskin. OK. It seems to me that is exactly what your1189competitors are doing. I understand you are a new entrant1190there, but everybody is responding to a market demand. I1191appreciate your candor in answering.1192    I would yield back. Thank you, Mr. Nadler.1193    Mr. Nadler. I yield back.1194    Mr. Fitzgerald. The gentleman yields back.1195    The gentleman from Texas is now recognized for five1196minutes.1197    Mr. Gooden. Hi, Mr. Griffin. Can you explain what1198guardrails, whether legal or regulatory, exist to ensure that1199ISS and Glass Lewis provide voting recommendations in the best1200financial interest of shareholders, and that they are not1201giving conflicting recommendations to clients about the proxy1202and shareholder proposals, if those exist?1203    Mr. Griffin. Thank you for your question, Congressman.1204    There are very limited legal and regulatory guardrails in1205place right now. Currently, there are no direct fiduciary1206duties to the ultimate investors, the clients of these1207institutional investors, who, in turn, hire the proxy advisors.1208    When we look at market demand and we use the term1209``investor'' to refer not to the people who invested their1210money, but to the financial intermediaries who control it, it1211can generate incorrect policy insights. In my view, firms like1212BlackRock should be considered intermediaries rather than true1213investors, essentially, custodians of the true investors'1214money.1215    Mr. Gooden. If I understand this correctly, kind of moving1216on down the road of some things I heard earlier, is it accurate1217to say that ISS is able to offer advisory services to boards of1218directors while also offering recommendations for how1219shareholders vote? Is that a thing?1220    Mr. Griffin. That's correct.1221    Mr. Gooden. Do you know of any other industry where such an1222inherent conflict of interest might exist?1223    Mr. Griffin. I'm not aware of any. I know that some1224analogous conflicts existed in the auditing and accounting firm1225context, but Congress took action with respect to those.1226    Mr. Gooden. The board of directors could be paying for them1227for services, and then, also, they are getting paid to1228recommend to the proxy advisors. Does that seem right?1229    Mr. Griffin. It does generate a potential conflict of1230interest, yes.1231    Mr. Gooden. Do you think, Ms. Minow, that there is a1232potential conflict of interest there?1233    Ms. Minow. Yes, I do. That's why I don't buy ISS services,1234and I do believe that anybody who does want to buy them should1235be able to buy them, understanding what the conflict of1236interest is.1237    Mr. Gooden. Interesting.1238    Mr. Egan, I think I am hearing that Egan-Jones is taking on1239two duopolistic actors, and in doing so, creating a more1240competitive marketplace. One of those areas that has been a1241particular concern for this Subcommittee has been the ESG1242issues, which are inherently politically charged. Do you know1243how often ISS and Glass Lewis are voting against the boards of1244directors on ESG issues?1245    Mr. Egan. I do not.1246    Mr. Gooden. OK. I would like to hear more from you, Mr.1247Griffin. This idea of these conflicts of interest, is this a1248thing with a business like Mr. Egan's or is this a problem with1249just the two big ones?1250    Mr. Griffin. The specific conflict of interest you're1251referring to arises from the provision of consulting services1252rather than the proxy advisory service itself. My understanding1253is that his firm does not offer those type of services, and the1254two largest proxy advisors do.1255    Mr. Gooden. What do you recommend that Congress should do1256to fix that?1257    Mr. Griffin. Well, there are a number of potential1258solutions. Congressman Fitzgerald's bill providing for, again,1259disclosure of and regulation of conflicts of interest, Could be1260very beneficial in a number of ways, and something analogous to1261what we did in the accounting firm context for Sarbanes-Oxley1262may be beneficial here.1263    Mr. Gooden. Thank you. I would yield my extra time to the1264Chair, if he has anything.1265    Mr. Fitzgerald. The Chair is recognized.1266    Chair Jordan. No.1267    Mr. Fitzgerald. Yes, well, I will recognize the Ranking1268Member for five minutes.1269    Mr. Raskin. OK. Thank you very much, Mr. Chair.1270    I'm very new to this whole field, but one thing I have1271learned about the proxy service community is that it is one1272that favors alliteration. We have platforms, purses, proxies,1273and practices; concentration, competition, and conflicts of1274interest. Even though they are both ``P'' and ``C'' words, I1275didn't really hear anything about collusion or price fixing.1276    Which leads me to believe that the fact that we are in the1277Antitrust Subcommittee today, and we are talking about1278antitrust, it is really the use of a metaphor here. I don't1279know--perhaps, Ms. Minow, you can correct me. Did you hear any1280allegations of an actual antitrust violation from any of your1281fellow witnesses?1282    Ms. Minow. I did not.1283    Mr. Raskin. OK. Well, I heard a lot about conflicts of1284interest. Just to be clear about this, is a conflict of1285interest an antitrust collusion?1286    Ms. Minow. No.1287    Mr. Raskin. OK. A conflict of interest is not an antitrust1288violation. I understand that the whole question of conflict of1289interest within this proxy service community is something that1290is heavily discussed and contested within the Securities and1291Exchange Commission and within our colleagues in the Financial1292Services Committee. Am I right about that? Do you know about1293that, the conflict of interest?1294    Well, perhaps I can come to you, Mr. Crain. You are using1295antitrust here as a metaphor, the way sometimes people say,1296``The Democrats and the Republicans are a duopoly. They control129790 percent or 95 percent of the votes. They control the House1298and the Senate.''1299    Sometimes, actually, that duopoly engages in1300unconstitutional practices. In Maryland, if I want to run for1301office, I just need one signature. If I want to run as an1302Independent, not as a Democrat or a Republican, I need 87,0001303signatures.1304    Although it is not an antitrust violation, strictly1305speaking, that metaphor helps to understand why there is a1306First Amendment problem there or an equal protection one.1307    You are just using antitrust as a metaphor? Am I right?1308Just help me understand. It is not a ``gotcha'' question. I'm1309trying to figure out what we are doing here.1310    Mr. Crain. Yes, I think it is a fair question from1311manufacturers' perspectives. They certainly feel the effects of1312this duopoly. I obviously defer to the distinguished Members of1313the Subcommittee about whether and to what extent it is1314officially an antitrust violation, but certainly manufacturers1315have experienced the effects of the market power that these1316firms yield.1317    Mr. Raskin. All right, well, let's talk about conflicts of1318interest, then.1319    Mr. Egan, your firm was actually charged with1320misrepresentations by the SEC. It was in 2008 or 2009, is that1321right?1322    Mr. Egan. We have been in NRSO (phonetic) for a number of1323years. We have been in the business as a rating firm for over132430 years. There have been a number of regulatory actions.1325    Mr. Raskin. Let me just speed ahead because I have got so1326little time. In 2022, you were charged with a conflict of1327interest, is that right?1328    Mr. Egan. Egan-Jones and I personally reached a settlement1329order on the rating side with our regulator in 2022.1330    Mr. Raskin. In 2022, OK. You were not charged with1331antitrust violations then. You were just charged with a1332conflict of interest, and you settled that with SEC, is that1333right?1334    Mr. Egan. We reached a settlement in 2022 with our1335regulator.1336    Mr. Raskin. All right. Ms. Minow, do you know whether ISF1337has been charged with a conflict of interest by the SEC?1338    Ms. Minow. They have not.1339    Mr. Raskin. What about the other one, Glass Lewis?1340    Ms. Minow. I don't believe they have. I certainly haven't1341read anything about it. I know that there have been discussions1342about it, but as I said, that is really for their customers to1343judge whether that affects their ability to provide independent1344research or not.1345    Mr. Raskin. OK, look, if proxy advisors or the duopolies1346that claim them are so omnipotent and they are allegedly1347colluding to advance so-called progressive proposals against1348corporations, why do the vast majority of the recommendations1349actually align with the management view? I would think that1350this duopoly is much more in service of the corporate State1351viewed from the Right or the Left. Isn't that right?1352    Ms. Minow. Ninety-six percent of the recommendations are to1353vote with management on matters like unopposed board members--1354    Mr. Raskin. OK. We are having an antitrust hearing about1355whether two firms out of many firms that are operating for-1356profit and not for-profit that advise companies voluntarily who1357want to come and become their customers about how to vote in1358shareholder proposals that are nonbinding are engaged in an1359antitrust conspiracy. This just blows my mind.1360    You mentioned one though where I don't know where the1361companies were on this, but Zaslav's salary was rejected. It1362was a $51.9 million salary, and the shareholders voted that1363there was too much money in Disney and the board dropped the1364salary by $16 million. What is wrong with that?1365    Ms. Minow. That is exactly how markets are supposed to1366work. I would just say that--1367    Mr. Raskin. How did the proxy advisors go on that one?1368    Mr. Fitzgerald. The gentleman's--1369    Ms. Minow. They recommended a vote against as all the1370financial press. It is objectively too much money for that and1371yet the companies still can ignore it if they want.1372    Mr. Fitzgerald. The gentleman's time has expired. The1373gentleman from North Carolina is now recognized for five1374minutes.1375    Mr. Harris. Thank you, Mr. Chair, and I thank all of you on1376the panel for your testimony today.1377    Mr. Crain, from my understanding of your testimony, your1378organizations argued the proxy advisors should give companies1379an opportunity to provide feedback on voting recommendations1380and to let shareholders see the dialog prior to a vote. There1381was a 2020 rule from the Securities and Exchange Commission1382that did expand transparency in this way, although such1383requirements were later revised and also struck down by the1384courts.1385    In your view, was this rule effective at all in improving1386the proxy advisor ecosystem?1387    Mr. Crain. Thank you for that question, Congressman. We1388certainly believe that that rule would have been effective at1389enhancing the degree of transparency and reliable, accurate1390information that investors could rely on. As you indicated,1391unfortunately, under the previous administration, Chair Gensler1392rescinded critical parts to that rule, including the provision1393of recommendations to companies so that they could respond1394appropriately and it has been tied up in litigation since then.1395The NAM is actually a party in that litigation and we are1396hopeful that we can defend the SEC's authority, but ISS has1397been steadfast in not wanting to be regulated, so we certainly1398think that there is more work to be done both by Congress and1399by the SEC to ensure that there is an appropriate degree of1400oversight of these powerful actors.1401    Mr. Harris. Well, let me just follow that up then. Now that1402this rule is no longer in place, what would you say in your1403opinion should be done to increase proxy advisor transparency?1404    Mr. Crain. Thank you for that question again. I think we1405start with the conflicts of interest. Certainly, the Chair's1406legislation about outright banning those conflicts is something1407that we support. From the SEC side, we have long supported1408transparency around those conflicts. Then, the issue that you1409raise at the beginning of your line of questioning of allowing1410the proxy firms to provide to companies draft recommendations1411that they can respond to spot errors and misunderstandings and1412most importantly to convey to investors here are the two sides1413of this issue and then that way they can make an informed1414decision. That is something that we move the ball forward in1415the right direction in the 2020 rule, but there is much more1416work to be done depending on how the outcome of these court1417cases go.1418    Mr. Harris. Well proxy advisors exist, obviously, because1419shareholders don't have time to research the company's policies1420before they are called on to help make decisions, so how do you1421think having access to more information would be helpful1422essentially if shareholders don't look at that information, how1423would it improve the proxy advisor's work product?1424    Mr. Crain. It is critically important that shareholders1425have access to all the information they need to make an1426informed decision. Unfortunately, under the status quo, we1427often see that proxy advisors robo-vote investors' shares1428before even reading the proxy firm's recommendation to say1429nothing of a potential corporate response to that1430recommendation. We really are starting behind the eight ball1431here in terms of investor understanding of these issues and1432transparency into them. There is much more work that needs to1433be done to ensure that investors have the information that they1434need to make an informed decision.1435    Mr. Harris. OK. Thank you very much. Mr. Griffin, when1436Americans invest in funds and companies, these entities have a1437fiduciary responsibility to act in the best interest of their1438investors. Unfortunately, ISS and Glass Lewis have worked1439together to push companies to implement ESG agendas. Does1440pushing recommendations, Mr. Griffin, favor ESG reflect the1441preferences of everyday Americans who are affected by these1442decisions?1443    Mr. Griffin. Thank you, Congressman. That the system is set1444up to serve the interests of these intermediaries rather than1445the investors to whom they owe fiduciary obligations. When we1446speak about it being market driven, I think that there are1447important limits on that and to the extent these large1448intermediaries favor the current system, favor the status quo,1449I find that unsurprising because it is designed to serve their1450interests.1451    Mr. Harris. In your opinion, what would be the most1452effective way to help insure proxy advisors are serving the1453interests of the American investors and consumers?1454    Mr. Griffin. Yhere are a number of excellent proposals1455throughout some of the bills in Congress today. Conflicts of1456interest are particularly a ripe area for looking at just to1457ensure the objectivity and neutrality of the recommendations1458that proxy advisors provide.1459    Mr. Harris. Thank you. Thank you very much. Mr. Egan, you1460mentioned in your written testimony that unlike your foreign-1461owned competitors, Egan-Jones Proxy Services is owned and1462operated in the United States. We know ISS is owned by a German1463corporation. Glass Lewis is owned by two Canadian financial1464institutions. What are the concerns surrounding the fact that1465the two leading providers of proxy vote guidance in the United1466States are based abroad? Could you expand on that?1467    Mr. Egan. Yes, and thank you for the question. In my1468opinion, the structure of this industry needs attention. The1469reason why I say that is because it is very easy for regulators1470to push on regulated entities without anybody knowing about it,1471without any rules, and without any regulation.1472    In the case of one of our competitors, ISS is owned by1473Deutsche Boerse. My presumption is that on a regular basis,1474they are meeting with the regulators because there are so many1475issues connected with the stock exchange. Therefore, those1476regulators, they might have a completely different view than1477what is in the United States for what constitutes something of1478value.1479    Mr. Fitzgerald. Thank you. The gentleman's time has1480expired. The gentleman from Illinois is now recognized for five1481minutes.1482    Mr. Garcia. Thank you, Chair Fitzgerald. I heard some very1483interesting descriptive language at the beginning of the1484hearing, and I want to ask Ms. Minow three quick yes or no1485questions, hopefully.1486    Are you part of a climate cartel?1487    Ms. Minow. No.1488    Mr. Garcia. Are you engaged in any racketeering?1489    Ms. Minow. No.1490    Mr. Garcia. Have you participated in any Mafia-style1491shakedowns?1492    Ms. Minow. No.1493    Mr. Garcia. OK. Today's hearing is supposedly about1494antitrust issues involving proxy advisors, but what is really1495going on here is we are seeing culture war and procorporate1496policies being advanced. Republicans argue that Glass Lewis and1497ISS have too much power and collude to advance so-called woke1498corporate governance. I would agree that any market that is 901499percent controlled by two entities should be scrutinized and1500proposals to foster more competition should be considered.1501Let's be clear. There is no evidence of collusion between Glass1502Lewis and ISS and what are some of the examples of woke1503corporate governance where these proxy advisors have1504recommended against the company's board's position hasn't been1505made.1506    Reporting on the use of child labor in supply chains for1507meat-packing corporations, auditing working conditions at1508Amazon, adopting living wage principles at Walmart, reporting1509by tech companies on the risk posed by generative AI, deriding1510labor rights as woke, gives away the game. Republicans are1511always siding with the bosses over workers, and the irony is1512that these examples of wokeness are outliers.1513    Ms. Minow, thank you for being here. Isn't it true that in15142024, ISS recommended voting with management on 96 percent of1515management proposals?1516    Ms. Minow. It is.1517    Mr. Garcia. Thank you. In your experience including as1518President of ISS, have you seen any evidence that ISS and Glass1519Lewis are using the recommendations to push a progressive1520agenda?1521    Ms. Minow. No.1522    Mr. Garcia. You studied at the University of Chicago, did I1523hear you correctly?1524    Ms. Minow. I did. I am from Illinois.1525    Mr. Garcia. Very well. Thank you. Republicans are trying to1526crush shareholder rights to benefit the corporate executives1527who disproportionately fund their party, and they continue to1528push the narrative about ESG and woke corporate governance to1529distract us from the truth. The truth is we are nowhere close1530to achieving and economic democracy that would empower workers,1531including the worker representation on corporate boards by any1532stretch.1533    The truth is as ridiculous as Republican attacks are1534against ESG, we must not allow wealthy corporations to exploit1535ESG as cover for their predatory practices, including union1536busting, worker exploitation, and consumer fraud. The truth is1537that we are living in an oligarchy where increasingly dominant1538corporations and billionaires control most of our government1539and public policy. The fundamental problem is not proxy1540advisors or ESG. It is a government that has been captured by1541the wealthy and serves their interest above those of working1542people.1543    I represent a district of working people. If Republicans1544had any interest other than protecting billionaires and wealthy1545corporations, this Subcommittee would be focusing on policies1546that tangibly improve the lives of our constituents. They1547don't. To me that is a betrayal of the real working class in1548America. Thank you, and I yield back.1549    Mr. Fitzgerald. The gentleman yields back. I now recognize1550the Chair of the Full Committee, Mr. Jordan, for five minutes.1551    Chair Jordan. Thank you, Mr. Chair. Mr. Crain, what1552percentage of publicly traded equity shares are held by1553institutional investors and pension funds?1554    Mr. Crain. It is a very large percentage. I forgot the1555exact number. It is North of 80 percent, I believe.1556    Chair Jordan. Eighty percent. Because of that, most1557shareholder votes are cast through proxy voting because the1558shareholder can, is that right?1559    Mr. Crain. That is exactly correct.1560    Chair Jordan. OK, and proxy advisors advise or recommend to1561the institutional investors and the pension funds how they are1562supposed to vote. Is that right?1563    Mr. Crain. That is correct.1564    Chair Jordan. Is their advice followed?1565    Mr. Crain. Pardon?1566    Chair Jordan. Is their advice followed? Is the proxy1567advisors' advice typically followed by the institutional1568investors and the pension funds?1569    Mr. Crain. It is absolutely followed and in many cases1570their shares are automatically cast by the proxy firms in line1571with those recommendations.1572    Chair Jordan. The institutional investors are doing exactly1573what the proxy advisors are told?1574    Mr. Crain. That is exactly correct, yes.1575    Chair Jordan. Who are the two largest again, who we have1576been talking about?1577    Mr. Crain. ISS and Glass Lewis.1578    Chair Jordan. ISS and Glass Lewis. How much of the market1579do they control?1580    Mr. Crain. Ninety-seven percent.1581    Mr. Johnson. Ninety-seven percent of the market, 80 percent1582of the shareholders' equity shares are with institutional and1583pension investors. Their advice is followed 95 percent of the1584time?1585    Mr. Crain. That is essentially correct.1586    Chair Jordan. Wow. That is pretty big. That is pretty big.1587How much money are we talking about?1588    Mr. Crain. Trillions of dollars of equity throughout the1589market.1590    Mr. Johnson. Five trillion, 20 trillion, and 30 trillion?1591How much are we talking?1592    Mr. Crain. I don't know the size of the market, but it is a1593large number of the equity markets in the United States.1594    Chair Jordan. My understanding is it is at least $201595trillion, and the other side says nothing to look at here.1596Nothing to look at here. Really? That seems like there is a lot1597to look at there and that is why we are having this hearing.1598    Now, what kind of advice--so their advice is followed 951599percent of the time, 70 percent of the market, over $201600trillion, what kind of advice are they giving?1601    Mr. Crain. It is advice on everything that comes before1602shareholders. It is how the company is run, how the executives1603are paid, the shareholder proposals that have been discussed,1604everything that comes before the shareholder base for a vote.1605    Chair Jordan. What kind of advice are they given in a1606political context?1607    Mr. Crain. We know that ISS, for example, recommended in1608favor of more than 80 percent of ESG shareholder proposals in16092023.1610    Chair Jordan. Pro-ESG, pro-DEI?1611    Mr. Crain. As a general rule, yes. Not 100 percent of the1612time, but, yes, as a general rule.1613    Chair Jordan. Vast majority of the time?1614    Mr. Crain. I would say yes.1615    Chair Jordan. OK, so kind of leaning to the Left, right?1616    Mr. Crain. I think that is probably a fair1617characterization.1618    Chair Jordan. Their advice is followed 95 percent of the1619time, and they have 90 percent of the market, 70 percent of1620these they are giving advice to, and it is always, almost1621always Left wing?1622    Mr. Crain. I think that is a fair characterization, yes.1623    Chair Jordan. Is that how you see it, Mr. Egan?1624    Mr. Egan. I have no reason for disagreeing with that.1625    Chair Jordan. What about you, Mr. Griffin?1626    Mr. Griffin. That while it varies by year and we have seen1627sort of swings with somewhat mirroring the political election1628cycle, that is--1629    Chair Jordan. Is that an accurate picture? Is that an1630accurate framework?1631    Mr. Griffin. Overall.1632    Chair Jordan. OK, now that is not the end of it, is it?1633Because it is even worse because this duopoly not only offers1634proxy advisor services, but consulting services as well.1635    Mr. Griffin. That is exactly right.1636    Chair Jordan. You can go consult with them before they give1637you the recommendations that are always followed, and if you1638don't consult with them, they might give you recommendations1639that in many ways harm the company and therefore harm the1640shareholders, is that right, Mr. Crain?1641    Mr. Crain. It is and we have seen that when companies get1642negative recommendations from the advice side, they will1643immediately get a solicitation from the consulting side saying1644hey, wouldn't you really like to have us help you out next year1645to avoid those?1646    Chair Jordan. Yes.1647    Mr. Crain. That is a pretty concerning fact pattern.1648    Chair Jordan. Will you pay the protection money? Will you1649pay the shake down?1650    Mr. Crain. Exactly.1651    Chair Jordan. Holy cow, such a deal. Such a deal. Ms. Minow1652was part of it all when she worked at ISS, is that right? The1653question wasn't for you; it is for Mr. Crain.1654    Ms. Minow. I understand that, but he doesn't know the1655answer and I do.1656    Chair Jordan. I wasn't asking you a question.1657    Ms. Minow. It is wrong. I did not allow--1658    Chair Jordan. You might be able to do the consulting1659services and the recommendations--1660    Ms. Minow. I did not allow ISS to do consulting when I1661was--1662    Chair Jordan. Does ISS do consulting now?1663    Ms. Minow. ISS does consulting now and--1664    Chair Jordan. There you have it. There you have it. My1665question--the way it works is the members get to ask the1666questions to the people they want to give the answers. My1667question was to Mr. Crain.1668    I appreciate you jumping in, Ms. Minow, and telling us that1669ISS does now offer consulting services in addition to the proxy1670advisor thing, which is the problem, which is--well, not the1671full problem, but certainly part of the problem.1672    Is that right, Mr. Crain?1673    Mr. Crain. I would agree with that, yes, sir.1674    Chair Jordan. Then, you can even go even maybe one step1675further and say on the platform no competition is allowed which1676I sort of get Ms. Minow's argument on the Amazon issue, I sort1677of get. It is almost like they have got this thing rigged from1678start to finish and it is two companies. The other side says1679nothing to look at here.1680    Well, that is kind of ridiculous and I appreciate the Chair1681and his work on this important issue. With that, I yield back.1682    Mr. Fitzgerald. The Chair yields back. The gentleman from1683Georgia is now recognized for five minutes.1684    Mr. Johnson. Thank you, Mr. Chair, and I would like to1685offer Ms. Minow the opportunity to fully respond to Mr. Jordan.1686    Ms. Minow. Thank you very much, I appreciate it. Yes, when1687I was at ISS, I was President. I did not allow us to do1688consulting services and yet, we were spending a ton of time1689trying to walk corporations through who would call us and say1690we want to understand your system. I understand why they do it1691now. The large institutional investors who choose to use their1692services bake that in.1693    Mr. Jordan mentioned the four-percent--1694    Chair Jordan. Do you agree with ISS, the decision to--1695    Mr. Johnson. It is my time. It is my time.1696    Ms. Minow. He mentioned the four-percent where they1697disagree. Interestingly, whenever ISS recommends a vote or1698Glass Lewis recommends a vote contrary to management, what we1699find there, if you look at the numbers, is that the clients1700make up their own minds. That, for example, ISS recommended a1701vote against Elon Musk's ridiculous $58 billion pay package and1702yet, the shareholders voted overwhelmingly in favor of it.1703    Mr. Johnson. Great example. Do you believe Milton Friedman,1704since you are a graduate of the University of Chicago, would he1705be turning over in his grave listening to this attack on the1706free-market system that this hearing represents?1707    Ms. Minow. He would be spinning like a top.1708    Mr. Johnson. Yes. Thank you. Mr. Egan, since 2002, have you1709been involved in the business of proxy advisor services,1710correct?1711    Mr. Egan. Since 2002.1712    Mr. Johnson. Since 2002, your primary competitors in this1713proxy advisor service industry has been Glass Lewis and ISS,1714correct?1715    Mr. Egan. That is correct.1716    Mr. Johnson. You have fought your way up to the top. Now,1717you are now the third largest proxy advisory firm operating in1718the Nation, correct?1719    Mr. Egan. We have been the third largest for a number of1720years, yes.1721    Mr. Johnson. I commend you for that. This hearing gives you1722an opportunity to promote the fact that your company is an1723anti-woke proxy advisor firm, correct?1724    Mr. Egan. I would not characterize our firm as an anti-ESG1725firm. We offer ESG--1726    Mr. Johnson. Well, I tell you your testimony, your1727testimony reads and looks like a promotional brochure for your1728company. I have never seen anything like it. You are here today1729to basically get some government help in positioning your1730business to become a larger player in this industry. Isn't that1731correct?1732    Mr. Egan. In my opinion, no.1733    Mr. Johnson. Well, let me ask you this--1734    Mr. Egan. If I may answer the question--1735    Mr. Johnson. No, let me ask you--1736    Mr. Egan. I would be happy to answer.1737    Mr. Johnson. I am moving on. I want to ask you about that17382012 SEC complaint that was filed against you that charged you1739with, among other things, having conflicts of interest. You1740hired the attorney, the same attorney that represents Donald1741Trump, Jr., Mr. Alan Futerfas. Isn't that correct?1742    Mr. Egan. Mr. Futerfas is not representing--1743    Mr. Johnson. He was your lawyer.1744    Mr. Egan. He hasn't represented the firm for over 10 years.1745    Mr. Johnson. He was your lawyer though, right?1746    Mr. Egan. Probably about 15 years ago, yes.1747    Mr. Johnson. The same lawyer that now represents Donald1748Trump, Jr. Are you one of the folks who contributed to Trump's1749inauguration campaign?1750    Mr. Egan. We are not.1751    Mr. Johnson. Or his campaign?1752    Mr. Egan. No.1753    Mr. Johnson. OK. You sure are seeking some exposure today1754on this anti-woke tip.1755    Mr. Egan. I am here today to provide insight into our1756expediences in--1757    Mr. Johnson. You are trying to create a competitive1758advantage. This is like crony capitalism, and I am sure that--1759    Mr. Egan. There are some real problems in this industry.1760    Mr. Johnson. I am sure that Milton Friedman would not be1761approving of this kind of conduct complicit with a Congress1762that is a rubber stamp to everything that Donald Trump is1763trying to do to put his finger on the free-market system and1764make it such that it works for him and his interests and1765everything else is secondary. With that, I am going to yield1766back.1767    Mr. Fitzgerald. The gentleman yields back. The gentleman1768from Virginia is now recognized for five minutes.1769    Mr. Cline. Thank you, Mr. Chair. I am going to yield as1770much time to the Chair.1771    Chair Jordan. I thank the gentleman. Just a quick question1772for Ms. Minow. Is ISS wrong now that they offer consulting1773services to their clients?1774    Ms. Minow. I disagree with it, but I am all in favor of1775every possible option be offered to the market and letting the1776market decide.1777    Chair Jordan. Is it wrong?1778    Ms. Minow. I don't use those services.1779    Chair Jordan. OK. Thank you.1780    Mr. Cline. Thank you. I want to restate what the gentlelady1781from Wyoming started with her questioning. Sounds like a racket1782to me.1783    Mr. Griffin, ISS and Glass Lewis' 90 percent plus market1784share clearly suggests a violation of Section 1 or Section 2 of1785the Sherman Act. Would you agree?1786    Mr. Griffin. Thank you for your question. I am more of a1787corporate governance expert. I am here to talk about that. It1788potentially does, but I am not able to opine on that.1789    Mr. Cline. Would DOJ or FTC scrutiny be justified based on1790historical--1791    Mr. Griffin. The situation certainly warrants further study1792and more broadly, I would take issue with the characterization1793of this as a market-driven phenomenon and a response to market1794pressure. It is a response to regulatory pressure to vote by1795these asset managers. Also, there are very weak financial1796incentives to respond to the concerns of the actual1797shareholders.1798    Mr. Cline. It is pretty clear. The absence of fiduciary1799responsibility paired with high-market concentration supports a1800case for closer antitrust scrutiny or regulatory intervention.1801The opposition seems to believe that these practices are immune1802somehow from antitrust scrutiny simply because they occur in1803the context of shareholder voting. Firms apparently, firms with1804effective monopoly power should be allowed to self-police their1805own competitive and ethical boundaries.1806    Mr. Griffin, are ideologically aligned ESG recommendations1807that mirror each other grounds for a Section 1 Sherman Act1808claim due to collusion?1809    Mr. Griffin. It may merit investigation. Broadly that1810investment managers are not incentivized to serve interest1811beyond those of the intermediary clients that they possess and,1812in particular, there are very weak ties to the actual1813investors.1814    Mr. Cline. Does offering consulting services to the same1815firms you issue proxy recommendations for meet the legal1816threshold for monopoly leveraging?1817    Mr. Griffin. It may be an important example of the market1818power they wield and there may be a cross-subsidy essentially1819between the consulting services and their advisory business.1820    Mr. Cline. Mr. Crain, how have ESG-driven voting1821recommendations affected your members' costs and operation?1822    Mr. Crain. Manufacturers are focused on growing their1823business, delivering return for shareholders, creating jobs for1824American people in every State and every Congressional1825district. To the extent that they are distracted from that1826critically important mission to support the U.S. economy, to1827respond to activists' proposals on the proxy ballot, or to the1828agenda of the proxy advisory firms, that is a distraction from1829the ultimate goal that we would all want to support which is1830that of driving the American economy and creating manufacturing1831jobs.1832    Mr. Cline. Have your members reported feeling pressure to1833purchase consulting services from these proxy firms?1834    Mr. Crain. They absolutely have. It is a relatively common1835fact pattern that you will receive a negative vote1836recommendation and then soon thereafter receive solicitations1837from the consulting service side of the business, asking if you1838would like to subscribe to avoid negative recommendations in1839the future and just structure your policies in line with what I1840assess and/or Glass Lewis want so that you avoid negative1841recommendations in the future. There is absolutely that degree1842of pressure.1843    Mr. Cline. If this type of dual role conflict is done by1844credit rating agencies or financial auditors, wouldn't it be1845just as unacceptable for it to be happening in those areas as1846well?1847    Mr. Crain. Congress has stepped in for those regards and1848the SEC did in this case, and unfortunately, that rule has been1849held up in court for the last five years and not been allowed1850to take effect.1851    Mr. Cline. Mr. Crain--I am sorry, Mr. Egan, have you ever1852lost business to ISS class loads due to bundled consulting1853services?1854    Mr. Egan. Would you mind repeating the question?1855    Mr. Cline. Have you ever lost business to ISS and Glass1856Lewis due to bundled consulting services?1857    Mr. Egan. Yes.1858    Mr. Cline. Wouldn't you say that--can you cite specific1859shareholder proposals or climate-related screens that seem1860ideologically driven rather than industrial oriented?1861    Mr. Egan. We see those regularly, but regarding losing1862business, bear in mind that they can charge nothing on the1863proxy advisory business and pick up in compensation on the1864other side of the business and maintain their preferential1865position which is crazy when you think about it.1866    Mr. Cline. Yes, that sounds like a scam to me. I yield1867back.1868    Mr. Fitzgerald. The gentleman yields back. The gentleman1869from California is now recognized for five minutes.1870    Mr. Issa. Thank you, Mr. Chair. Many good questions have1871been asked and I am going to try and close some of them1872together for a moment. Antitrust is complicated and you always1873have to ask things like what is the relevant market and so on,1874but per se when you have just two that control 90 percent in1875general, assuming it is a relevant market, that is monopolistic1876power, correct? Nobody on any side disagrees that we have the1877potential for monopolistic behavior because you have such1878concentration.1879    Now, in monopolies, the most common thing that we look at1880is tie-ins, one product being leveraged by another. Is there1881anybody here that doesn't see that at least in the abstract,1882there appears to be a tie-in when the two companies controlling188390 percent of the market also have a product that is, in fact,1884could be independent, could be spun off, but it isn't because1885it is a tied-in product? OK.1886    After all this time of not necessarily all agreeing, we1887have got agreement on those two which means that we have per se1888monopolistic power. We have a tie-in and now what we are trying1889to discover is have they used that tie-in?1890    Mr. Egan, I am going to push the envelope of this body by1891reminding people of Godfather 1. In ``The Godfather,'' when the1892Corleones' representative goes out to California and he is1893talking about the things that could go bad like union problems1894and so on, and that the Godfather would be very appreciative if1895he just gives this man a part in his movie and then those1896problems wouldn't exist. He gets thrown out. Then there wasn't1897the union strike, but there was a response.1898    In your experience, have you seen that this is essentially1899what is happening. You are being told by others, hey, if you1900hire these guys, things will go better. When you don't, you end1901up with an adverse proxy situation. Isn't that sort of what1902happens? It isn't quite ``The Godfather.'' There is not1903actually a horse in your bed, but in fact, you do see bad1904things happen when you don't hire them and less bad things when1905you do.1906    Mr. Egan. I can't disagree with that. In fact, I--1907    Mr. Issa. No one disagrees with ``The Godfather.'' It is1908just one of my favorite movies.1909    OK, I will open this up at some risk and say if that is the1910case, then shouldn't we and agencies in the Federal Government,1911in general, be looking at a breakup of that power to create a1912tie? Isn't that we are really here on both sides of the aisle,1913hopefully, looking and thinking we should consider? Each of1914you.1915    Mr. Egan?1916    Mr. Egan. Absolutely. This market has become dysfunctional,1917OK, from our perspective, that you have two companies,1918particularly one company, ISS, controlling the platform with1919consulting. Then, also the proxy advisory one. When we have1920been hired by a major institutional investor and are relying on1921ISS to get information so we can conduct our business, we are1922not getting that information. That information, as I mentioned,1923in my testimony, was when the proxy due date is. If we don't1924have that, it is very, very difficult. They said, hey, listen,1925we are a distributor here. We are not going to give you that1926information. We have been impeded. OK?1927    As I said before, they can charge nothing on their proxy1928advisory service and more than make it up on their consulting1929service.1930    Mr. Issa. That is why we call it a tie-in.1931    Mr. Egan. Absolutely, and this notion of just because it is1932a free market everything is fine, well, with almost every1933single monopoly or duopoly situation, it started off as a free1934market and then it became dysfunctional.1935    Mr. Issa. Mr. Crain, you represent so many manufacturers1936who are just trying to compete. They seldom, if ever, have a 901937percent or a 45  2 market share. Isn't it true that1938one of the biggest impediments to their being competitive is1939when the sources that they want to buy their products'1940subcomponents from have, if you will, a lock on the market of194190 percent between two vendors. Isn't that the most--isn't that1942by definition what makes the people you represent unable to1943deliver a product is even if they are a diverse group, if they1944are buying from one of two vendors, they get to pay a lot more,1945correct?1946    Mr. Crain. That is correct.1947    Mr. Issa. Thank you, I yield back.1948    Mr. Fitzgerald. The gentleman yields back. This concludes1949today's hearing. We thank our witnesses for appearing before1950the Committee today. Without objection, all Members will have1951legislative days to submit additional written questions for the1952witnesses or additional materials for the record. Without1953objection, the hearing is adjourned.1954    [Whereupon, at 11:41 a.m., the Subcommittee was adjourned.]19551956    All materials submitted for the record by Members of the1957Subcommittee on the Administrative State, Regulatory Reform,1958and Antitrust can be found at: https://docs.house.gov/1959Committee/1960Calendar/ByEvent.aspx?EventID=118422.