By Saul Anuzis
Most Americans assume that when they put money into a 401(k), pension fund, or retirement account, the people managing those investments are focused on one thing and one thing only: putting them in the best financial position possible.
Reasonable assumption. Unfortunately, a small group of corporate insiders has spent years using other people's retirement savings to advance their own agendas while collecting handsome paychecks along the way.
That is why, just days ago, the States of Florida, Iowa, Nebraska, Texas, and West Virginia sued a company called Institutional Shareholder Services (ISS). The states' lawsuit follows President Trump's directive for federal antitrust authorities to examine whether ISS and its chief rival, Glass Lewis, have become too ideologically driven while having amassed too much power over corporate America. Twenty-three state attorneys general have also launched an investigation into the firms.
Most Americans have never heard of ISS or Glass Lewis. Maybe that's exactly how they like it.
The two firms dominate the business of what's known as "proxy advice.”
Every year, major investment vehicles like pension funds, mutual funds, and asset managers cast millions of shareholder votes on behalf of their investors. Because evaluating every vote independently is time-consuming, many companies outsource the work to proxy advisory firms to help guide those decisions.
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In theory, that sounds harmless. In practice, it has allowed ISS and Glass Lewis, which control 90 percent of the proxy advisory marketplace, to become extraordinarily powerful gatekeepers. Their recommendations can influence how enormous pools of investment capital are voted. When they oppose a company's leadership, boards often take notice, and when they demand changes, executives listen.
The result is that two little-known firms have acquired enormous influence over decisions that can affect the value of millions of Americans' retirement accounts.
Northwood University's Brett Decker recently called these two companies "grifters." They sell consulting services to many of the same corporations whose governance practices they evaluate, creating an uncomfortable conflict of interest.
As a result, companies that want to avoid negative recommendations often feel pressure to align with ISS and Glass Lewis's preferred policies and governance standards while, as a show of good faith, purchasing the consulting services from the same firms evaluating them. If what ISS and Glass Lewis want the companies to do is politically motivated but financially damaging, many businesses see that as an unfortunate but necessary cost of doing business.
It's a pretty sweet arrangement—at least for ISS and Glass Lewis. Not so much for the retirees, workers, and investors whose money is caught in the middle.
Such arrangements might have worked for Paulie Walnuts and Christopher Moltisanti in The Sopranos, but they shouldn’t work in the real world.
For quite some time now, the American Consumer Investor Institute, led by former Congressman Blaine Luetkemeyer — a former member of the House Financial Services Committee who chaired several of its subcommittees — has been a persistent voice warning that these powerful gatekeepers have acquired outsized influence over American businesses and that they deserve greater scrutiny from antitrust regulators and policymakers. Thanks to ACII sounding the alarm bells, regulators across the country are investigating, with the states now asking those questions in court.
ACII is also working with the Financial Services Committee on legislation to hold this duopoly accountable. Chair French Hill and Rep. Bryan Steil deserve recognition for helping move the conversation from complaints to solutions. Washington has talked about this problem for years. Congress now has an opportunity to do something about it.
Americans work hard for their retirement savings. They deserve to know that the people influencing corporate decision-making are focused on maximizing value for investors, not maximizing their own influence. They do not need another class of highly paid corporate insiders inserting themselves between shareholders and the companies they own. And they certainly do not need corporate gatekeepers getting rich while ordinary investors foot the bill.
Americans deserve retirement accounts that are managed to maximize returns, not enrich middlemen. Thanks to leaders like Blaine Luetkemeyer, the American Consumer Investor Institute, President Trump, and state officials willing to take on entrenched interests, that common-sense principle may finally be making a comeback.
Saul Anuzis is President of the 60 Plus Association, a 501c4 non-partisan, non-profit organization that is committed to educating and advancing issues that matter most to seniors and their families
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