Confronting Advisory Consolidation With Proxy Personalization

How democratizing stewardship gives investors power.

Proxy advisory services — consultancies that handle laborious proxy research for investors and stewardship teams — hold the reins of shareholder democracy. The world of corporate governance can be imposing and impenetrable, and proxy advisors are here to tell you who and what to vote for at each company. Unfortunately for the savvy steward, there are basically only two proxy advisory firms that anyone takes seriously. Together, Institutional Shareholder Services (“ISS”) and Glass Lewis account for around 90% of the market. Especially for small investment firms that can’t afford to replicate or supplement this work internally (as larger asset managers do), there isn’t much choice in terms of who ends up steering client votes. Many scholars describe this scenario as a duopoly.

This a problem for a few reasons, the most glaring of which is that, thanks to their influence and reach, the analysts at ISS and Glass Lewis have ended up with outsized control over proxy voting outcomes at public corporations. This market dominance has growing opposition. Amid their crusade against ESG investing, Republican lawmakers have criticized the duopoly’s allegedly progressive leanings. The Wall Street Journal Editorial Board recently highlighted research questioning the accuracy of advisors’ recommendations and called for stronger regulation.

In any case, the largest asset managers, whose own market control over governance outcomes is where consolidated proxy advisory’s direction is most visible, continue to overwhelmingly vote in agreement with management. Research arguing that advisors manufacture controversy has not disproved this prevailing bias toward uniformity. “There is no way,” says Troop Product Manager Cassidy Donohue, “that ISS or Glass Lewis can represent the beliefs of the Kingdom of Saudi Arabia, the California teachers’ pension fund and your 401k in a set of voting policies you can count on one hand.” That 90% constitutes a diverse constellation of investors with diverse values and goals, guided by top-down strategies.

At Troop, we believe the existing proxy model is ripe for disruption. Our platform, built around generative AI and machine learning, gives stewardship teams the power to turn their own values and preferences into voting directives and analysis in a way that’s more personal than a gun-for-hire proxy advisory service. Firms can likewise offer this personalization to clients, turning passive investments active, and reenergizing an investor base that has been alienated from the corporate governance process.

It’s a process that’s informed by the way the proxy advisory process already works, and starts with the investor. Tell Troop where you’re going, and AI helps you get you there, producing bespoke voting recommendations. Think of it as a deeper and more flexible approach to customization that enables value alignment in the gears of the system, beyond the tailored stock choice promised by bundled index funds. Troop helps stewards and beneficiaries pursue their own goals.

The result is an approach that’s not only more engaged with the realities of corporate governance, but that’s more streamlined than this historically wonky process has ever been. Outdated voting solutions and proxy advisory services represent the one mass-produced aspect of an otherwise bespoke process. The future of stewardship — as well as the future of corporate governance, transparency, and accountability — lies not just in championing personalization, but maintaining that commitment the whole way through.

Subscribe to Troop Insights: