    [House Hearing, 119 Congress]
    [From the U.S. Government Publishing Office]

                                     ______

              THE PROXY ADVISOR DUOPOLY'S ANTICOMPETITIVE CONDUCT

    =======================================================================

                                    HEARING

                                   BEFORE THE

       SUBCOMMITTEE ON THE ADMINISTRATIVE STATE, REGULATORY REFORM, AND
                                   ANTITRUST

                           COMMITTEE ON THE JUDICIARY

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                            WEDNESDAY, JUNE 25, 2025

                                   __________

                               Serial No. 119-27

                                   __________

             Printed for the use of the Committee on the Judiciary

       GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT

                   Available via: http://judiciary.house.gov

                            ______

                 U.S. GOVERNMENT PUBLISHING OFFICE
     60-839          WASHINGTON : 2025

                           COMMITTEE ON THE JUDICIARY

                            JIM JORDAN, Ohio, Chair

    DARRELL ISSA, California             JAMIE RASKIN, Maryland, Ranking
    ANDY BIGGS, Arizona                      Member
    TOM McCLINTOCK, California           JERROLD NADLER, New York
    THOMAS P. TIFFANY, Wisconsin         ZOE LOFGREN, California
    THOMAS MASSIE, Kentucky              STEVE COHEN, Tennessee
    CHIP ROY, Texas                      HENRY C. ``HANK'' JOHNSON, Jr.,
    SCOTT FITZGERALD, Wisconsin              Georgia
    BEN CLINE, Virginia                  ERIC SWALWELL, California
    LANCE GOODEN, Texas                  TED LIEU, California
    JEFFERSON VAN DREW, New Jersey       PRAMILA JAYAPAL, Washington
    TROY E. NEHLS, Texas                 J. LUIS CORREA, California
    BARRY MOORE, Alabama                 MARY GAY SCANLON, Pennsylvania
    KEVIN KILEY, California              JOE NEGUSE, Colorado
    HARRIET M. HAGEMAN, Wyoming          LUCY McBATH, Georgia
    LAUREL M. LEE, Florida               DEBORAH K. ROSS, North Carolina
    WESLEY HUNT, Texas                   BECCA BALINT, Vermont
    RUSSELL FRY, South Carolina          JESUS G. ``CHUY'' GARCIA, Illinois
    GLENN GROTHMAN, Wisconsin            SYDNEY KAMLAGER-DOVE, California
    BRAD KNOTT, North Carolina           JARED MOSKOWITZ, Florida
    MARK HARRIS, North Carolina          DANIEL S. GOLDMAN, New York
    ROBERT F. ONDER, Jr., Missouri       JASMINE CROCKETT, Texas
    DEREK SCHMIDT, Kansas
    BRANDON GILL, Texas
    MICHAEL BAUMGARTNER, Washington
                                     ------

                   SUBCOMMITTEE ON THE ADMINISTRATIVE STATE,
                        REGULATORY REFORM, AND ANTITRUST

                       SCOTT FITZGERALD, Wisconsin, Chair

    DARRELL ISSA, California             JERROLD NADLER, New York, Ranking
    BEN CLINE, Virginia                      Member
    LANCE GOODEN, Texas                  J. LUIS CORREA, California
    HARRIET HAGEMAN, Wyoming             BECCA BALINT, Vermont
    MARK HARRIS, North Carolina          JESUS G. ``CHUY'' GARCIA, Illinois
    DEREK SCHMIDT, Kansas                ZOE LOFGREN, California
    MICHAEL BAUMGARTNER, Washington      HENRY C. ``HANK'' JOHNSON, Jr.,
                                             Georgia

                   CHRISTOPHER HIXON, Majority Staff Director
                      JULIE TAGEN, Minority Staff Director
                                C O N T E N T S

                                  ----------

                            Wednesday, June 25, 2025

                               OPENING STATEMENTS

                                                                       Page
    The Honorable Scott Fitzgerald, Chair of the Subcommittee on the
      Administrative State, Regulatory Reform, and Antitrust from the
      State of Wisconsin.............................................     1
    The Honorable Jerrold Nadler, Ranking Member of the Subcommittee
      on the Administrative State, Regulatory Reform, and Antitrust
      from the State of New York.....................................     3
    The Honorable Jim Jordan, Chair of the Committee on the Judiciary
      from the State of Ohio.........................................     5
    The Honorable Jamie Raskin, Ranking Member of the Committee on
      the Judiciary from the State of Maryland.......................     5

                                   WITNESSES

    Sean Egan, Co-Founder, President, Chief Executive Officer, Egan-
      Jones Ratings Company
      Oral Testimony.................................................     8
      Prepared Testimony.............................................    11
    Caleb N. Griffin, Associate Professor of Law, University of North
      Carolina School of Law
      Oral Testimony.................................................    17
      Prepared Testimony.............................................    19
    Charles Crain, Managing Vice President, Policy, National
      Association of Manufacturers
      Oral Testimony.................................................    26
      Prepared Testimony.............................................    28
    Nell Minow, Chair, ValueEdge Advisors
      Oral Testimony.................................................    41
      Prepared Testimony.............................................    43

              LETTERS, STATEMENTS, ETC. SUBMITTED FOR THE HEARING

    All materials submitted for the record by the Subcommittee on the
      Administrative State, Regulatory Reform, and Antitrust are
      listed below...................................................    67

    Matrials submitted by the Honorable Jerrold Nadler, Ranking
      Member of the Subcommittee on the Administrative State,
      Regulatory Reform, and Antitrust from the State of New York,
      for the record
        An article entitled, ``Proxy advisory rms: What they are &
            why you should care,'' Dec. 21, 2023, Diligent
        An article entitled, ``Sustainable corporations perform
            better financially, report finds,'' Sept. 23, 2014, The
            Guardian
        An article entitled, ``ESG: Illegal Collusion or Just Good
            Business Sense?'' Jul. 31, 2024, Triple Pundit
    A report entitled, ``The Conflicted Role of Proxy Advisors,'' May
      2018, American Council for Capital Formation, submitted by the
      Honorable Harriet Hageman, Member of the Subcommittee on the
      Administrative State, Regulatory Reform, and Antitrust from the
      State of Wyoming, for the record

              THE PROXY ADVISOR DUOPOLY'S ANTICOMPETITIVE CONDUCT

                                  ----------

                            Wednesday, June 25, 2025

                            House of Representatives

                   Subcommittee on the Administrative State,

                        Regulatory Reform, and Antitrust

                           Committee on the Judiciary

                                 Washington, DC

        The Subcommittee met, pursuant to notice, at 10 a.m., in
    Room 2141, Rayburn House Office Building, the Hon. Scott
    Fitzgerald [Chair of the Subcommittee] presiding.
        Members present: Representatives Fitzgerald, Jordan, Issa,
    Cline, Gooden, Hageman, Harris, Nadler, Raskin, Garcia, and
    Johnson.
        Mr. Fitzgerald. The Subcommittee will come to order.
        Without objection, the Chair is authorized to declare a
    recess at any time.
        We want to welcome everyone to today's hearing on ``The
    Proxy Advisor Duopoly's Anticompetitive Conduct.''
        I will now recognize myself for an opening statement.
        Today, we are here to examine a deeply concerning threat to
    our system of free enterprise and competitive markets, the
    foreign-owned proxy advisor duopoly. Institutional Shareholder
    Services, or ISS, and Glass Lewis control more than 90 percent
    of the proxy advisor market and can sway, roughly, one-third of
    the vote on any shareholder proposal.
        These foreign-owned proxy advisors use their power to act
    as de facto regulators of American companies, dictating the
    outcome of board elections and major business proposals. They
    set their own politically motivated agenda and pressure U.S.
    companies to
    comply.
        ISS and Glass Lewis are not regulatory agencies subject to
    APA requirements. They are not fiduciaries that owe a
    responsibility to investors, and they are certainly not elected
    officials answering to the American voters. Yet, they have
    become unsupervised referees for every major corporate decision
    in America.
        One negative recommendation from this duopoly can erase
    millions of dollars in market capitalization overnight. Just
    ask America's oil and gas producers, who have seen their boards
    reshuffled, or the American manufacturers forced to adopt
    costly emissions targets not required by any statute or
    regulation.
        American companies live in constant fear of a proxy advisor
    duopoly that owes no responsibility to anyone. Even more
    concerning, both of these gatekeepers are foreign-owned. The
    strategic direction of American enterprise is being ghost
    written in other countries, then rubberstamped on U.S. proxy
    statements. That should concern just about everyone who is here
    today who cares about our economic system or America's
    competitiveness in the global arena.
        Today's hearing will show how ISS and Glass Lewis wield
    power in shaping policy entrenched in their duopoly and
    stifling all competition.
        Consider their involvement in the climate cartel. This
    committee has already shown how ISS and Glass Lewis colluded
    with climate activists, the world's largest asset managers, and
    international nonprofits to impose radical ESG mandates on U.S.
    companies.
        While this Subcommittee has been encouraged by the progress
    made by asset managers to return to its foundational model, the
    proxy duopoly remains the largest impediment to ensuring our
    capital markets are focused on growing America's retirement
    investment accounts.
        Through their recommendations, ISS and Glass Lewis pressure
    businesses to slash reliable energy production, adopt DEI
    quotas, and reroute capital away from lawful, and profitable
    endeavors. This is not responsible for corporate governance. It
    is policymaking by proxy, and it is putting politics over
    profits.
        What is the cost of this activism? Higher prices for
    consumers, lower returns for retirees, and a distortion of
    American capitalism.
        If that were not bad enough, ISS and Glass Lewis engage in
    a blatant conflict of interest, selling consulting services to
    the very companies they issue recommendations against and
    punishing the ones that refuse to pay. In a mafia-style
    shakedown, companies are forced to pay for the duopoly's
    consulting services at the risk of retaliation during the next
    proxy season. This is not objectivity or sound corporate
    governance. It is a coerced, pay-to-play system that harms
    businesses and investors alike.
        How do the proxy advisors maintain their market power? They
    don't just issue voter recommendations; they control the very
    systems that investors use to vote through their voting
    platforms, and through those, the ISS and Glass Lewis make sure
    most investors never see another advisor's recommendations
    before casting their vote.
        The rival proxy advisors cannot access these systems, and
    public companies cannot reasonably avoid them. This is the
    exact kind of gatekeeping that our antitrust laws were written
    to prevent.
        Because ISS and Glass Lewis have complete control over
    these platforms, they can preload each ballot with their own
    recommendations. When investors rely on the default settings,
    as many do, a massive number of shareholder votes move to
    lockstep with the duopoly's ideological agenda. In practice,
    that means two private foreign entities can shift approximately
    one-third of the shareholder vote on any given proposal, and it
    works.
        In 2022, when the New York City Pension Fund filed a
    shareholder proposal requesting an audit of Starbucks' labor
    practices, the duopoly lent its support, and the proposal
    passed with 52 percent.
        That same year, ISS and Glass Lewis supported a resolution
    requesting McDonald's conduct a third-party civil rights audit.
    That proposal was adopted as well.
        Congress cannot continue to allow foreign-owned proxy
    advisors to regulate the practices of American companies. We
    certainly cannot allow them to continue strong-arming companies
    into purchasing their consulting services.
        That is why I have introduced the Stopping Proxy Advisors
    Racketeering Act, which would prevent these advisors from
    offering consulting services on the very recommendations that
    give them power.
        I would also encourage our competition authorities at the
    DOJ and the FTC to take note of this hearing and consider
    focusing their attention and resources on studying the
    potential anticom-
    petitiveness and the effects of this proxy duopoly.
        Congress must make sure that American corporations answer
    to shareholders and the U.S. law, not foreign interests.
    Today's hearing is the first step toward doing just that.
        Our witnesses today have firsthand knowledge of how this
    system operates and the effects it has on American businesses.
        Mr. Sean Egan is the Co-Founder and President at Egan-Jones
    Rating Company. Egan-Jones is one of the few proxy advisor
    firms competing against this massive duopoly.
        Mr. Charles Crain is the Managing Vice President of policy
    at the National Association of Manufacturers. He represents
    American manufacturing firms that have experienced the harmful
    impacts of the proxy advisor duopoly.
        Mr. Caleb Griffin is an Associate Professor of Law at the
    University of North Carolina Law School. He has done extensive
    scholarly work on the corporate governance, proxy advisors, and
    related systematic reforms.
        I want to thank each witness for appearing before us today
    and look forward to your insights.
        I now recognize the Ranking Member, Mr. Nadler, for his
    opening statement.
        Mr. Nadler. Thank you, Mr. Chair.
        Thank you to our witnesses for being here today.
        Yet again, our Republican colleagues are pushing baseless
    allegations of antitrust violations at the expense of American
    consumers. Today's hearing alleges collusion between the two
    largest proxy advisors, consulting firms that provide analysis
    and recommendations to institutional investors, such as pension
    funds and employee benefit plans, on how to vote their shares
    at companies' shareholder meetings.
        The Republicans' theory: That these two companies,
    Institutional Shareholder Services, or ISS, and Glass Lewis,
    work together to push ideological goals over financial reform.
    They allege that these proxy advisors advance socially liberal
    policies at the expense of their investors, their customers'
    return on investment, and their own businesses. Like so many of
    the flawed antitrust theories the Republicans have brought
    before this Committee, it simply does not hold water.
        Proxy advisors are a vital tool for investors. While deep-
    pocketed companies or clients can do assessments of proxy
    materials in-house, retail investors and mutual funds rely on
    expert independent advice from large proxy firms like ISS and
    Glass Lewis.
        Proxy advisors inform their customers about the hundreds,
    and sometimes thousands, of complex proposals they may be
    called on to consider, helping them to fully exercise their
    rights as shareholders of publicly traded companies.
        They do this by providing independent assessments of
    company proxy materials and shareholder proposals. Anyone in
    the financial services industry understands the value of
    trusted information. Customers pay ISS and Glass Lewis, and
    sometimes both companies, or even a third service, for
    independent assessments of company proxy materials and
    shareholder proposals.
        To be clear, no one is forcing these customers to pay for
    their services, and no investor is bound by their subscription
    to ISS or Glass Lewis to follow their recommendations. The fact
    the companies generally do follow their advice is a reflection
    of the hard work proxy advisors do to ensure that their
    recommendations are in line with the goals and values of their
    clients. They do not leverage their market power over their
    clients' independent determinations. If their customers do not
    like their information or their advice, they can stop
    subscribing to ISS or Glass Lewis at any time. We should
    remember that it is the investor, not the proxy advisor, that
    casts the ultimate vote at shareholder meetings.
        Proxy advisors can be particularly beneficial to pension
    funds by allowing them to maximize returns for their
    beneficiaries by reallocating resources that would otherwise go
    to analyzing the vast quantity of shareholder proposals they
    face.
        Take New York, for example. As of 2018, it was the third
    largest public pension plan in the Nation and held $207.4
    billion in assets. These assets are overseen by the New York
    State Controller's Office and are held on behalf of more than
    one million members of the New York State and local retirement
    systems.
        The Controller's Office, like its counterparts in other
    States, takes advantage of proxy advisory services to be better
    informed about the companies to which they have invested public
    employees' funds. The majority's baseless attacks on the proxy
    advisor market may force New York's, and other pension funds,
    to expend unnecessary resources by conducting their own
    shareholder analyses, which could undermine their ability to
    deliver strong returns for their beneficiaries.
        Once again, the Majority has invented a flawed antitrust
    theory to justify its attacks on an industry it does not like.
    Although the vast majority of investor proposals are
    uncontroversial, such as uncontested board elections or the
    approval of company-nominated slates of electors, they are a
    tiny fraction of issues concerning social governance that the
    Majority labels DEI or proposals that, quite reasonably,
    consider the risks of climate change in making responsible
    investment decisions.
        In each case, proxy advisors conduct an independent
    analysis and offer their best advice to their clients, who are
    free to make their own independent judgment on how to vote.
    Republicans do not like some of the recommendations that these
    two proxy advisors have made, and therefore, as has become
    commonplace in this Committee, they have launched another
    unfounded antitrust investigation designed purely to intimidate
    and harass their opponents.
        During the last Congress, the Republicans a fatally flawed
    antitrust investigation targeting investment groups that
    consider environmental, social, and governance, or ESG,
    strategies. Now, the Majority is following the same playbook
    and arguing that ISS and Glass Lewis are conspiring to advance
    pro-ESG and pro-DEI recommendations, in spite of a lack of
    evidence.
        This fact-free investigation is all part of the
    Republicans' larger goal of entrenching corporate interests and
    conservative political preferences. The Republicans' focus on
    alleged collusion between ISS and Glass Lewis not only furthers
    their culture war campaign, but also allows them to target and
    dilute shareholder rights that would otherwise threaten the
    interests of their corporate allies.
        The Majority alleges collusion between ISS and Glass Lewis
    because they often issue similar recommendations, but this
    reflects incredibly shallow analysis. If you go to multiple
    doctors and they each diagnose you with cancer, that is not
    evidence of collusion.
        In this case, fair and impartial analyses of market
    conditions and best practices are yielding similar conclusions.
    There is nothing nefarious about this.
        Proxy advisory firms empower shareholders to exercise their
    own judgment and expertise. The market is working as it should.
    Yet, Republicans are trying to meddle in it for political
    purposes. I urge my colleagues to end this fishing expedition
    and to focus on the real issues our constituents face.
        I look forward to hearing from the witnesses, and I yield
    back.
        Mr. Fitzgerald. The gentleman yields back.
        I now recognize the Chair of the Full Committee, Mr.
    Jordan, for his opening statement.
        Chair Jordan. Thank you, Mr. Chair.
        I want to thank our witnesses for being here today.
        I especially want to thank the Chair for the work he is
    doing on exposing this duopoly and what they have been up to.
    This is an important hearing and an important subject.
        With that, I yield back.
        Mr. Fitzgerald. The gentleman yields back.
        I now recognize the Ranking Member of the Full Committee,
    Mr. Raskin, for his opening statement.
        Mr. Raskin. Mr. Chair, thank you very much.
        Today's hearing is another installment in what I'm thinking
    of as a series of nonantitrust antitrust hearings. Because my
    Republican colleagues seem so confused on the subject, I think
    a basic primer on what antitrust means may be in order.
        The Supreme Court has compared the antitrust laws to the
    Magna Carta of free enterprise that is as important to the
    preservation of economic freedom in our free enterprise system
    as the Bill of Rights is to the protection of fundamental
    personal freedom.
        Robust antitrust enforcement is vital for everyone in
    American society--from consumers to workers, to innovators, and
    to citizens. Antitrust is fundamentally about making sure the
    marketplace is an open and fair terrain for companies to
    innovate and compete.
        Now, like Donald Trump, our GOP colleagues seem to think
    that antitrust is about Congress and the President picking
    business favorites to help and punishing business companies
    they disfavor. That has got nothing to do with antitrust, free
    markets, or fair competition. That is just gangster-State
    economics. That is how a business operates in authoritarian
    societies.
        Our colleagues accuse two proxy advisors, ISS and Glass
    Lewis, of colluding to advance a progressive agenda when they
    make recommendations to their clients in advance of shareholder
    meetings. Well, of course, on the Antitrust Subcommittee, we
    should be concerned about collusion in the market. As Justice
    Scalia warned, ``the supreme evil of antitrust is collusion.''
    That's Verizon v. Trinko.
        Collusion between competitors with the intent to fix
    pricing is per se illegal. You would think that, if our
    colleagues were going to use their bully pulpit to charge two
    companies with the ``supreme evil of antitrust,'' they would
    come armed with mountains of compelling, unassailable, and
    ironclad evidence. Even their own witnesses are not alleging
    collusion.
        It reminds me of when the Oversight Committee had an
    impeachment hearing against President Biden in the last
    Congress, and none of their expert witnesses could identify
    evidence of impeachable high crimes and misdemeanors. Instead,
    they couldn't find sufficient quantum of evidence.
        It is not like my colleagues haven't been warned. The
    Supreme Court has gone out of its way to explain, quote, ``An
    allegation of parallel conduct and a bare assertion of
    conspiracy will not suffice,'' to constitute an antitrust
    violation. That is exactly what our colleagues are doing here.
    They are making allegations based on the independent market
    actors sometimes taking parallel positions, and then, asserting
    collusion without any proof. I don't believe that there is even
    an assertion of price fixing going on.
        Now, you might chalk this up to just confusion about
    antitrust law and an innocent mistake, but our colleagues are
    using these allegations to intervene in and distort the market,
    and to target ideas and actors they simply disfavor; they don't
    like.
        They did this last Congress by targeting carbon-conscious
    investors for daring to use their rights as shareholders to
    push oil companies to invest in renewable fuel and position
    these companies to be more competitive in the face of the
    pervasive threat of climate change--a global emergency that,
    obviously, will have a direct effect on the bottom line of
    fossil fuel companies.
        Now, the majority wields this same empty theory of
    antitrust harm against proxy advisors. Why? Simply because
    these companies help shareholders, including those committed to
    responsible investing, maximize their rights as part owners of
    publicly traded companies. Antitrust collusion is now the all-
    purpose GOP name for any market activity or commercial or
    political speech that they disagree with.
        The proxy advisors are plainly responding to a marketplace
    demand. If they weren't, they wouldn't be in business. They are
    responding to the needs and the requests of their customers.
    There is an increased appetite among shareholders to invest
    responsibly. Some don't want to invest in businesses
    contributing to climate change or to gun violence. Some don't
    want to invest in companies doing business with Iran or Russia,
    or other repressive countries. These investors, proxy advisors'
    clients, want to exercise their rights as shareholders to push
    for changes to corporate governance and policy in the companies
    where they own shares. They have got every right to do so.
        Proxy advisors like ISS and Glass Lewis go through hundreds
    of thousands of pages of proxy materials and give their
    customers their independent assessment of shareholder
    proposals, helping them decide whether to support or oppose
    them. Their only role is to provide information for their
    clients to enable them to exercise their rights. These
    companies have every right to issue their assessment of these
    proposals. It is protected as commercial speech, just as their
    clients have a shareholder right to propose, consider, and vote
    on them.
        To be clear, the issues they are called to evaluate are not
    just progressive shareholder initiatives. True, my colleagues
    seem worked-up about shareholder initiatives that call for
    things like an audit of child labor practices in the meat
    packing industry or an assessment of working conditions in
    commercial warehouses that have an extraordinary rate of
    workplace injuries.
        The exercise of shareholder rights is not, and has never
    been, a one-sided partisan exercise. Over the past several
    years, there has been record growth in shareholder proposals
    from conservative groups, like the proposal at Disney to demand
    that the company sever its ties with the Human Rights Campaign
    and with different kinds of gay and lesbian policies. They have
    got every right to do that. That proposal failed, just like
    many progressive shareholder proposals failed, and even if it
    succeeded, let me remind you that these proposals are entirely
    nonbinding. They can give expression to shareholder of concerns
    of the right to left of the center, but they can't force a
    company to do anything at all.
        What is the real problem here? Why are we repeating a
    hearing that the Financial Services Committee just had at the
    end of April? Why are we concerning ourselves with supposed
    conflicts of interest, when the SEC has already addressed them
    with rules proposed under Trump and kept under Biden?
        We are here because it seems the Trump Administration
    doesn't seem to believe in allowing voters to be informed.
    Instead, they are making it harder for voters to learn about
    the issues and tougher for voters to cast their ballots,
    especially when they are likely to disagree with them.
        Shareholder rights, like citizen rights, are protected by
    law. This empty theory of antitrust harm infringes on the free
    market, on the rights of shareholders, and on the ability of
    shareholders to be informed about what companies are doing.
    Antitrust should not be used to censor political or commercial
    speech, to distort markets, or to disenfranchise shareholders.
    This is censorship masquerading in the language of antitrust
    analysis.
        I thank my colleagues, and I yield back to you, Mr. Chair.
        Mr. Nadler. Mr. Chair?
        Mr. Fitzgerald. The gentleman yields back.
        Mr. Nadler. I have two unanimous consent requests.
        Mr. Fitzgerald. State your requests.
        Mr. Nadler. OK. I ask unanimous consent to enter into the
    record a summary provided by ESG strategeies Diligent, dated
    December 21, 2023, which lists the new competitors expanding
    the proxy voting advice industry in the United States: Egan-
    Jones Proxy Services, Segal Marco Advisors, and ProxyVote Plus.
        I have a second unanimous consent request. I ask unanimous
    consent to enter into the record an article from The Guardian
    titled, ``Sustaining Corporations Perform Better Financially,
    Report Finds,'' which finds that, quote, ``Corporations that
    are actively managing and planning for climate change secure an
    18 percent higher return on investment than companies that
    aren't--and 67 percent higher than companies who refuse to
    disclose their emissions.''
        This puts to bed the tired and false talking about the
    sustain-
    ability- and diversity-focused shareholder proposals hurt the
    savings of everyday people. Quite the opposite is true.
        Mr. Fitzgerald. Without objection. We will now introduce
    today's witnesses.
        Mr. Sean Egan. Mr. Egan is Co-Founder, President, and CEO
    of Egan-Jones Company, a credit-rating and proxy advisor firm.
    Prior to founding Egan-Jones, Mr. Egan was a commercial and
    investment banker in the financial industry.
        Professor Caleb Griffin. Mr. Griffin is an Associate
    Professor of Law at the University of North Carolina School of
    Law. His research focuses on business organizations, contracts,
    corporate law and governance, secured transactions, and
    technology and the law.
        Mr. Charles Crain. Mr. Crain is the Managing Vice President
    of Policy at the National Association of Manufacturers, where
    he oversees the association's advocacy efforts on behalf of
    manufacturers in America. He previously was the Vice President
    of Domestic Policy at NAM, working at the Biotechnological
    Innovation Organization, and as a House and Senate staff
    member.
        Ms. Nell Minow. Ms. Minow is the Chair of ValueEdge
    Advisors, an institutional investor advisory firm. She
    previously was the Co-Founder and Director of GMI Ratings, and
    was editor and co-founder of its predecessor firm, The
    Corporate Library.
        We welcome our witnesses and thank them for appearing
    today.
        We will begin by swearing you in. Would you please rise and
    raise your right hand?
        Do you swear or affirm under penalty of perjury that the
    testimony you are about to give is true and correct to the best
    of your knowledge, information, and belief, so help you God?
        Let the record reflect that the witnesses have answered in
    the affirmative.
        Thank you. You can please be seated.
        Please know that your written testimony will be entered
    into record in its entirety. Accordingly, we ask that you
    summarize your testimony in five minutes.
        Mr. Egan, you may begin.

                         STATEMENT OF SEAN EGAN

        Mr. Egan. Chair Fitzgerald, Ranking Member Nadler, and the
    Members of the Subcommittee, thank you for the opportunity to
    testify today.
        I'm Sean Egan, Co-Founder and Managing Director of Egan-
    Jones. Egan-Jones has two primary businesses, a credit-rating
    agency registered with the SEC and a proxy advisory business.
    I'm testifying today on behalf of the proxy advisory business.
        The Egan-Jones Proxy Services was established in 2002 and
    has become the leading independent proxy advisor. Unlike the
    other two major proxy advisory firms, Egan-Jones does not offer
    corporate consulting services, which creates an unmanageable
    conflict of interest. In our opinion, disclosures and perceived
    firewalls do not sufficiently mitigate the inherent conflicts
    of interest. Additionally, unlike our foreign-owned
    competitors, Egan-Jones Proxy Services is owned and operated in
    the United States. U.S. capital markets are not well-served by
    the duopoly of ISS and Glass Lewis, whose combined market share
    exceeds 90 percent.
        Our clients rely on our recommendations for voting on
    corporate matters, such as director elections, compensation,
    M&A, and other events. While we offer several methodologies,
    our fastest-growing one is our wealth-focused approach. That is
    because Egan-Jones believes the vast majority of investors are
    investing in savings and retirement. The policy is not board-
    aligned because directors with poor impact on shareholder
    returns will be opposed. Policymakers should focus on
    legislative and regulatory proposals that bring competition to
    the marketplace by focusing on the following recommendations,
    which can be summarized as the 4Ps:

        (1) LPlatforms. Make them neutral. Currently, ISS provides
    a voting platform that is used by the bulk of institutional
    investors. For years, Egan-Jones has tried to be included
    widely in the platform--with little success. The platform
    carries Egan-Jones' recommendations, but only if a client
    explicitly requests those recommendations. For all other
    potential customers, ISS hides Egan-Jones as an option.
    Further, ISS refuses to provide critical information such as
    voting deadlines, making it difficult for us to service
    clients.
        (2) LPurse. No one can serve two masters. Proxy advisory
    firms should not provide corporations with governance,
    executive compensation, DEI, and ESG ratings, thereby creating
    an unmanageable conflict of interest. A wall between the
    businesses does not address the underlying conflict, as ratings
    or assessments from the consulting side are, typically, used by
    the proxy advisory side. Companies feel obligated to purchase
    consulting services from ISS and Glass Lewis, so that they will
    receive better outcomes at the ballot box. Others view this as
    a shakedown.
        (3) LPolicies. Expand access to alternative proxy advisory
    methodologies via voting choice platforms. Policymakers should
    continue encouraging these reforms, so investors have great
    choices.
        (4) LPractices. End robo-voting and other dubious
    practices. Shareholders' votes are critical to the proper
    functioning of the economy. Abdicating that responsibility
    should be disallowed. Examples of dubious practices including:
    (a) Always voting with management, or (b) voting in a manner
    that replicates the voting of other investors, which is also
    known as mirror voting.

        I commend Representative Fitzgerald's draft legislation,
    the Stopping Proxy Advisors Racketeering Act. The legislation
    would prohibit proxy advisory firms from offering consulting
    services.
        In conclusion, the 4Ps make this market dysfunctional and
    impede competition.

        (1) LPlatform. ISS's platform is pervasive, and access is
    restricted. Additionally, information needed for competing
    proxy advisors should be readily available.
        (2) LPurse. Charging corporations for consulting services
    creates an unmanageable conflict of interest.
        (3) LPolicies. Expand access to alternative proxy advisors'
    methodologies via voting choice programs.
        (4) LPractices. End robo-voting and other dubious
    practices.

        These factors impede the market and make it more difficult
    for Americans to save for a meaningful retirement.
        Thank you again for inviting me to testify.
        [The prepared statement of Mr. Egan follows:]

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        Mr. Fitzgerald. Thank you, Mr. Egan. Professor Griffin, you
    may begin.

                     STATEMENT OF CALEB N. GRIFFIN

        Mr. Griffin. Chair Fitzgerald, Ranking Member Nadler, Chair
    Jordan, Ranking Member Raskin, and distinguished Members of the
    Subcommittee, thank you very much for inviting me to testify
    this morning.
        Proxy advisory firms wield substantial influence over
    corporate governance, acting as pivotal intermediaries between
    publicly traded corporations and institutional investors. In
    our classic archetype of the corporation, shareholders possess
    both economic and voting rights. Today, however, investors
    often provide monetary investment, while firm-level voting
    rights reside with another party. This introduces additional
    complexity into the governance process. How can intermediaries
    vote for such a large number of shares? How do we ensure that
    they possess strong incentives to vote them well?
        Proxy advisors have become the de facto answer to the
    former question, and I would suggest that we have yet to
    adequately solve the latter. Owners have strong incentives to
    care about the governance impact of various policies because it
    is their own money on the line, but this simply isn't true for
    many intermediaries. Proxy advisors, in particular, do not
    capture any of the gains or suffer any of the losses from share
    price movements. They are effectively insulated from the
    consequences of their governance decisions, either good or bad.
    This insulation weakens the responsiveness to investor
    concerns, generates potentially significant conflicts of
    interest, and may lead to misalignment with investor
    priorities.
        In my view, the key issues in the proxy advisor industry
    can be consolidated into three broad categories: Concentration,
    competition, and conflicts.
        First, concentration. As others have noted, just two firms,
    Institutional Shareholder Services and Glass Lewis control
    roughly 90 percent of the market for proxy advisory services.
    This, essentially, duopolistic structure significantly limits
    the range of governance opinions available to investors, and it
    may generate biases or amplify inaccuracies, potentially
    diminishing the health of our capital markets.
        Moreover, the concentrated nature of the proxy advisor
    industry enhances the influence of the major proxy advisory
    firms over firm-level voting outcomes. Research has suggested
    that ISS and Glass Lewis hold considerable sway over
    institutional investors' voting behavior. For instance, equity
    plan proposals, uncontested director elections, and proxy
    contests receive 17 percent, 18 percent, and 73 percent more
    votes in favor, respectively, when supported by ISS. Likewise,
    a favorable recommendation from Glass Lewis generates 16
    percent more support for say-on-pay votes, 12 percent more for
    equity plan proposals, and 64 percent more for proxy contest
    ballot items.
        Second, the proxy advisory industry would significantly
    benefit from enhanced competition. A key point here is that it
    is not only the number of meaningful competitors that may be
    deficient, but also the nature of that competition. Currently,
    proxy advisors often cater to the needs and preferences of
    intermediary agents rather than those of the actual investors
    and beneficiaries whose retirements are at stake.
        Third, and perhaps most critically, proxy advisors suffer
    from important conflicts of interest. For instance, both ISS
    and Glass Lewis offer certain consulting services, whereby
    these advise clients on governance issues, and subsequently,
    influence voting outcomes on those very issues. Thus, major
    proxy advisors may occupy multiple roles, playing the part of
    advisor and arbiter.
        For example, consider governance decisions related to
    executive compensation. ISS issues voting recommendations on
    thousands of say-on-pay votes that occur every year. Research
    suggests that a negative recommendation from ISS on say-on-pay
    proposals is associated with a 25 percent lower rate of support
    overall--an impact that, in the words of one scholar, is
    indicative of ``strong influence of overshielded votes.''
        Companies seeking to garner a favorable recommendation from
    ISS may be motivated to purchase a service that it calls
    ``executive compensation solutions.'' For an undisclosed fee,
    companies can consult with a compensation expert to design,
    monitor, and communicate executive pay programs. The fact that
    ISS is judging the merits of the same executive compensation
    packages it was paid to advise heightens the risk of
    problematic conflicts of interest. Companies and investors may
    perceive, accurately or not, that paying a proxy advisor for
    governance consulting will influence their voting
    recommendations. Although the dominant proxy advisors may take
    internal measures to help ameliorate this challenge to the
    objectivity of the recommendations, there is, to my knowledge,
    no clear regulatory protection.
        Much as Sarbanes-Oxley addressed similar conflicts of
    interest in the context of accounting firms, some of the draft
    legislation in Congress today, such as the bill by Congressman
    Fitzgerald, aims to provide analogous protection in the proxy
    advisory context.
        In my view, the disclosure and prevention of conflicts of
    interest in our financial markets is not a partisan issue, but
    rather an important protection for investors, companies, and
    the American capital markets.
        Thank you very much for inviting me to testify and I look
    forward to your questions.
        [The prepared statement of Mr. Griffin follows:]
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        Mr. Fitzgerald. Thank you, Professor Griffin. Mr. Crain,
    you may begin.

                       STATEMENT OF CHARLES CRAIN

        Mr. Crain. Good morning, Chair Fitzgerald, Ranking Member
    Nadler, Ranking Member Raskin, and the Members of the
    Subcommittee.
        My name is Charles Crain, and I'm the Managing Vice
    President of policy at the National Association of
    Manufacturers.
        Manufacturers have long understood that the proxy firm
    duopoly of ISS and Glass Lewis has a significant and damaging
    impact on their businesses. Proxy firms' outsized influence
    dictates corporate decisions and it distracts from the long-
    term best interests of Main Street shareholders. Yet, these
    firms remain stubbornly unregulated.
        ISS and Glass Lewis have cornered the market on proxy
    voting advice and they have not been shy about using their
    market position to create a feedback loop of power and
    influence--at the expense of investors saving for a new home, a
    child's education, or a secure retirement.
        Let's start with the facts of this duopoly. ISS and Glass
    Lewis together control 97 percent of the proxy advice market.
    This dominant position insulates the firms from
    accountability--to the point where the two market players, as
    has been discussed, have significant conflicts of interest and
    are widely recognized as offering error-filled, opaque, and
    one-size-fits-all advice, and yet, they still enjoy market
    dominance. In other words, when two entities run the show, they
    can run it however they please, and everyday people are the
    ones who pay the price.
        Bolstering this power are the firms' voting platforms. Now,
    these platforms do provide a legitimately useful service. They
    connect institutional investors to the back-end of the proxy
    voting system. ISS and Glass Lewis use their proxy voting
    platforms to push their clients toward their proxy voting
    research and recommendations. They will even prefill the
    platform with their preferred votes, and then, robo-vote an
    investor's shares on their behalf. This system, which would be
    virtually impossible for a new market entrant to replicate,
    leverages the utility of these platforms to push clients toward
    their voting recommendations.
        Now, let's turn to those voting recommendations themselves.
        First and foremost, these recommendations are powerful. ISS
    and Glass Lewis can swing the outcome of shareholder votes--
    meaning they, effectively, set corporate governance standards
    for the entire market. This usurps the authority of corporate
    boards and of the SEC, and it ensures that investors need to
    hire proxy firms and that companies need to pay them.
        Further, proxy firms' recommendations are both complicated
    and opaque. This effectively forces companies to purchase those
    consulting services to understand the firms' complex
    methodologies. The proxy firms' standards appear designed to
    increase their own market power, often at the expense of
    companies and shareholders.
        Take, for example, proxy firms' insistence on annual say-
    on-pay votes, when Congress has made explicitly clear that
    annual votes are not required. Who benefits from forcing annual
    votes more than ISS and Glass Lewis, who will be paid to
    provide voting recommendations for each and every one of these
    votes across thousands of public companies every single year?
        Similarly, on some issues, the proxy firms require
    companies to meet a supermajority vote threshold to avoid a
    future negative recommendation. The easiest way to fail to meet
    that threshold, of course, is to have ISS or Glass Lewis
    recommend against the company. A negative vote recommendation
    can depress shareholder support, which, in turn, leads to more
    negative vote recommendation, which further depresses
    shareholder support on more issues and more nominees, and on
    and on and on--and all the while, the company, manufacturers
    across the country are being pitched by proxy firms' consulting
    services to just pay up and avoid this costly and self-
    perpetuating cycle.
        These complicated fact patterns keep emerging because proxy
    firms operate with conflicts of interest baked into their
    business models. One-half of a proxy firm operating a
    consulting service to help companies avoid a negative
    recommendation from the other half of the some proxy firm is a
    per se risk to investors--raising the specter which we have
    seen time and time again of recommendations that are designed
    to enrich the firms rather than benefit investors.
        That is why manufacturers support Chair Fitzgerald's
    legislation to prevent proxy firms from offering supposedly
    neutral proxy voting advice if they have a conflict of interest
    poisoning their objectivity. Manufacturers understand the
    stakes of getting this right, and we stand ready to help
    Congress rein in the proxy firm duopoly and institute much-
    needed guardrails that address proxy firms' conflicts of
    interest, their errors, their robo-voting, their one-size-fits-
    all standards, their ESG agendas, and more.
        Thank you.
        [The prepared statement of Mr. Crain follows:]
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        Mr. Fitzgerald. The gentleman yields back. Ms. Minow, you
    are not recognized for five minutes.

                        STATEMENT OF NELL MINOW

        Ms. Minow. Thank you very much, and thanks to the Committee
    for including me.
        When I worked in the Reagan Administration, one of the
    things that I was proudest of was our commitment to free
    markets and to reducing nanny-state-type regulations. I feel
    like I'm a little bit through the looking glass here today
    because it is very disappointing to me to hear the Republicans
    on this Committee want to interfere with the most robust free
    market evolution of a product that I could possibly imagine.
        It meets every one of the criteria that I learned at the
    University of Chicago. The proxy advisory firms rose to meet a
    need that began in the 1980s. In fact, I was there at the
    beginning of ISS. We intended to have a different product
    entirely, and everybody we talked to said, ``What we want is
    proxy voting recommendations.''
        Nobody has to buy it. Nobody has to follow their
    recommendations. They are purchased by the most sophisticated
    financial professionals on the planet. What I'm hearing here is
    a lot of vague allegations that are not supported.
        If ISS and Glass Lewis are too powerful, corporate America
    should be popping champagne corks. They recommend votes with
    management 96 percent of the time. I would love to hear from
    America's corporations why four percent of the time a
    suggestion that perhaps they might disagree with management is
    too much. It is very disappointing to me to hear corporations
    say they don't want to hear from their shareholders and they
    don't want independent advice to be available to them.
        If there are more votes against pay packages because of
    proxy advisor recommendations, that is because those pay
    packages have been determined by market forces to be too much.
    I suggest you look at Mr. Zaslav's pay package, which did get a
    majority against. Remember, though, those votes, as Mr. Raskin
    pointed out, are nonbinding. Even a 100 percent vote in favor
    of whatever shareholder proposal that you don't like, if it is
    about the environment or ESG, a company doesn't have to follow
    it and companies do ignore these votes, even a 52 percent vote,
    all the time. Why they wouldn't want this very low-pressure
    mechanism for delivering the comments about shareholder
    concerns, I do not understand.
        I hear terms like ``dictates'' and ``stubbornly
    unregulated.'' The last people who need the nanny State
    stepping in are these financial professionals, the largest
    investors. Proxy advisor services are not sold to individual
    households. There are new entrants all the time. I personally
    use one that is nonprofit and free for my accounts. We have
    ones that are more pro-ESG. We have ones that are explicitly
    anti-woke, anti-ESG.
        Public corporations are currently devoting enormous amounts
    of money and effort--and I might say creativity--to coming up
    with ways to cutoff shareholder oversight and including
    restricting the sole sources of independent research on matters
    presented to them for their approval. Really, the worst you can
    come up with is that they want to review pay annually instead
    of every three years. Congress gave shareholders the right to
    choose whether they wanted to look at say-on-pay annually or
    every three years. They choose annually. ISS doesn't get paid
    by the vote. It is more work for them for the same pay. That is
    just completely wrong.
        I strongly urge this Committee to allow the free market to
    operate.
        Thank you very much.
        [The prepared statement of Ms. Minow follows:]
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        Mr. Fitzgerald. Thank you very much.
        I will now proceed under the five-minute rule with
    questions.
        The gentlewoman from Wyoming--
        Mr. Nadler. Mr. Chair, I have a unanimous consent request.
        Mr. Fitzgerald. The gentleman is recognized. Can we hold
    some of these until the end, I guess?
        Mr. Nadler. OK, after this one.
        Mr. Fitzgerald. OK, go ahead.
        Mr. Nadler. I ask unanimous consent to enter into the
    record an article dated July 31, 2024, entitled, ``ESG: Illegal
    Conclusion or Just Good Business Sense?'' which explains how,
    quote,

            Limiting investors' ability to assess risk and reducing
            competition for financial services is detrimental to investors'
            returns in these, and the people who are paying the price for
            this are the constituents--the firefighters, the police
            officers, and the teachers.

        Mr. Fitzgerald. Without objection. The gentlewoman from
    Wyoming is now recognized for five minutes.
        Ms. Hageman. I'm sorry, but this sounds like a racket. I
    can just hear, ``That's a nice company you have there. It would
    be a tragedy if something happened to it.''
        Wow, about 70 percent of publicly traded equity shares are
    held by institutional investors rather than individuals. ISS
    and Glass Lewis control at least 90 percent of the proxy
    advisor market, exerting influence over $20 trillion in
    investor assets. Glass Lewis is owned by two Canadian financial
    institutions and ISS by a German corporation. Yet, together,
    they dictate votes for most of America's publicly traded
    companies.
        Mr. Egan, should foreign-owned businesses hold that kind of
    power and control over U.S. companies?
        Mr. Egan. Thank you very much for the question.
        In our opinion, for capital markets to work properly, you
    need a diversity of views. Perhaps the biggest concern that
    exists in the market is that it is dysfunctional in the sense
    that the two dominant proxy advisory firms are not independent;
    that they are using the recommendations and the scores and the
    ratings on the consulting side to drive their proxy advisory
    votes. If they charged nothing for their proxy advisory
    services, and basically, using a monopoly on one area--that is,
    with the platforms--to extend to the other area, they would be
    just fine.
        There is relatively little competition because there is
    blockage, and those four items that I had mentioned really
    should be examined to keep the markets competitive.
        Ms. Hageman. Well, do you think that most Americans know
    about this foreign ownership or what these companies actually
    do?
        Mr. Egan. I highly doubt it.
        Ms. Hageman. OK. Mr. Crain, with this much control, there
    must be an understanding of whether proxy advice actually
    aligns with investor preferences, as these firms grow in power
    and influence. In your experience in working with U.S.
    manufacturers, have these ideology-driven directives, based in
    climate change policies, the DEI agenda, ESG policy, and more,
    strengthened their competitiveness or added unnecessary costs
    and constraints?
        Mr. Crain. Thank you for that question, Congressman--
    Congresswoman. Excuse me.
        I think that the key thing to remember here is that the
    proxy advisor firms don't have a fiduciary duty to the
    underlying Main Street investors who are saving for a secure
    retirement via these larger institutional investors. When they
    are making these voting recommendations and casting investors'
    votes through their robo-voting services on their behalf, they
    have no underlying obligation to those everyday Americans.
    Whether that is on everyday corporate governance topics or on
    some of the ESG matters that you have described, they have
    their own set of beliefs about how corporate America should be
    run and they don't have any obligation to align those beliefs
    with the financial needs of everyday Americans saving for
    retirement in the public market.
        Ms. Hageman. Well, listening to the testimony from the four
    of you, that is the thing that struck me the most; is that this
    seems to be a fundamental violation of these companies'
    fiduciary responsibilities to maximize profits for their
    shareholders. Do you agree with that, Mr. Crain?
        Mr. Crain. I do, and that is a question that has been
    raised at the SEC, in fact, of whether and to what extent the
    institutional investors who blindly follow these proxy firm
    recommendations, or, indeed, allow votes to be robo-vote
    without even reviewing what the proxy firms are suggesting,
    whether and to what extent they are complying with their
    fiduciary obligations, as managing assets on behalf of everyday
    Americans saving for retirement.
        Ms. Hageman. Mr. Griffin, I would like to turn to you. If
    proxy advisors are making recommendations to asset managers who
    vote with other people's money, and these recommendations are
    politically driven, then is the system actually protecting the
    interests of the real owners, such as the retirees and savers,
    or is it really furthering the agenda of these other
    organizations?
        Mr. Griffin. Thank you for the question.
        There is a risk that we prioritize different interests than
    those of the true investors, those individuals who are working
    people, teachers, firefighters saving for their retirement, and
    those interests may diverge from the intermediaries who hire
    the proxy advisory firms. I think that is a risk.
        Ms. Hageman. Has the market share of ISS and Glass Lewis
    allowed for this shift from protection of real investor
    interest to what seems to be a more politically driven agenda,
    Mr. Griffin?
        Mr. Griffin. That is certainly possible. That the market
    concentration and market power that they have has created--
    essentially, put them in a quasiregulatory role, in some ways
    allowing them to determine things like influence from
    materiality standards, standards for director independence, and
    effective voting thresholds for board response to shareholder
    proposals and--
        Ms. Hageman. Well, thank you, gentlemen and Ms. Minow, for
    being here today.
        I ask unanimous consent to introduce into the record a
    document entitled, ``The Conflicted Role of Proxy Advisors,''
    from May 2018.
        Mr. Fitzgerald. Without objection.
        Mr. Fitzgerald. The gentlewoman yields back.
        Ms. Hageman. Thank you.
        Mr. Fitzgerald. The Ranking Member is now recognized for
    five minutes.
        Mr. Nadler. Thank you, Mr. Chair.
        Ms. Minow, you worked in the DOJ's Antitrust Division. Is
    there any evidence that ISS and Glass Lewis are colluding?
        Ms. Minow. There is none.
        Mr. Nadler. Is there any evidence that they are fixing
    prices?
        Ms. Minow. There is no evidence of that.
        Mr. Nadler. Is there any evidence that they are blocking
    new entrants?
        Ms. Minow. No. There are new entrants all the time, as I
    mentioned, including two nonprofits and two--one started by
    Vivek Ramaswamy--that are explicitly anti-woke.
        Mr. Nadler. Typically, when competitors collude, they do so
    to raise prices. The majority, however, is alleging that ISS
    and Glass Lewis are colluding to push ESG and DEI agendas. At
    the same time, the Majority is arguing that ESG and DEI issues
    are detrimental to the companies that their clients are
    investing in. If both things are true, wouldn't this collusion
    mean that investors are getting bad advice from proxy advisors,
    and that, therefore, the investors would be incentivized to
    change providers?
        Ms. Minow. Absolutely. Let's remember that the clients of
    the proxy advisor services are enormous, multimillion-dollar
    financial firms who are very sophisticated and who are
    completely driven by shareholder returns. Furthermore, ISS and
    Glass Lewis--and I presume all the other proxy advisory firms--
    are constantly in touch with their clients saying, ``Do we need
    to change our policies to better reflect your priorities?'' The
    people who purchase those services are market-driven, and the
    people who provide those services are market-driven to meet
    their needs.
        Mr. Nadler. Thank you.
        Are there competitors that these investors could turn to?
    We are not seeing a retreat from these firms, isn't that
    correct?
        Ms. Minow. That's right. If Sean's firm wants to compete
    with ISS and Glass Lewis, he should probably try to produce a
    better product.
        What I really don't understand is why he thinks he has a
    right to the platform that they built with their time, with
    their energy, and with their expertise. It would be like me
    saying, ``I'd like to send my packages through Amazon trucks
    because they have got this great infrastructure.'' If he wants
    to compete with that, let him build his own; make it better.
        Mr. Nadler. Assuming that the Majority is right, these
    actions would, presumably, undermine ISS and Glass Lewis' own
    bottom lines and revenue, and therefore, would hurt these firms
    and damage their position in the market. There is no evidence
    of that, is there?
        Ms. Minow. There is no evidence of that.
        Mr. Nadler. Ms. Minow, the Majority also claims that ISS
    and Glass Lewis prevent new market entrants because they
    control voting platforms, as well as provide advisory services.
    Is this true?
        Ms. Minow. No. They developed their own platforms, just as
    if you want to log into your account on the bank at a bank or a
    brokerage house. They have created their own platforms, and
    anyone else can create theirs as well.
        Mr. Nadler. Investors are not forced to use the voting
    platforms, and thus, they could get advice from ISS and Glass
    Lewis, and then, use a separate entity's voting platform, is
    that correct?
        Ms. Minow. That is correct. ISS told me that, if enough of
    their clients asked to have Sean's firm on their platform, they
    would add it, but nobody is asking for it.
        Mr. Nadler. Thank you.
        This hearing is yet another example of my colleagues across
    the aisle weaponizing an empty theory of antitrust harm to come
    after free speech and the exercise of shareholders' right,
    simply because they disagree with the content of that speech
    and the exercise of those rights. It is a dangerous use of this
    Committee's power, and I urge my colleagues to reconsider.
        I yield to the Ranking Member of the Full Committee.
        Mr. Raskin. Thank you very much, Mr. Nadler.
        Mr. Egan, does your firm--you are, essentially, a
    competitor to the two big firms we are talking about, is that
    right?
        Mr. Egan. Thank you for your question, and the answer is
    yet.
        Mr. Raskin. OK. Does your firm collude with other proxy
    advisors?
        Mr. Egan. No.
        Mr. Raskin. Do you have an ESG policy for the people you
    advise?
        Mr. Egan. We do.
        Mr. Raskin. Do you have a non-ESG policy for the people you
    advise?
        Mr. Egan. We don't label it as non-ESG. We have a wealth-
    focused policy we--
        Mr. Raskin. OK. If I want ESG, I could come to you? If I
    don't want ESG, I could come to you? I have got alternatives,
    options?
        Mr. Egan. That is accurate.
        Mr. Raskin. Why do you set up as an array of options like
    that?
        Mr. Egan. To provide investors with a choice.
        Mr. Raskin. You are meeting the needs and desires of your
    clients and meeting market demand?
        Mr. Egan. That's accurate.
        Mr. Raskin. OK. It seems to me that is exactly what your
    competitors are doing. I understand you are a new entrant
    there, but everybody is responding to a market demand. I
    appreciate your candor in answering.
        I would yield back. Thank you, Mr. Nadler.
        Mr. Nadler. I yield back.
        Mr. Fitzgerald. The gentleman yields back.
        The gentleman from Texas is now recognized for five
    minutes.
        Mr. Gooden. Hi, Mr. Griffin. Can you explain what
    guardrails, whether legal or regulatory, exist to ensure that
    ISS and Glass Lewis provide voting recommendations in the best
    financial interest of shareholders, and that they are not
    giving conflicting recommendations to clients about the proxy
    and shareholder proposals, if those exist?
        Mr. Griffin. Thank you for your question, Congressman.
        There are very limited legal and regulatory guardrails in
    place right now. Currently, there are no direct fiduciary
    duties to the ultimate investors, the clients of these
    institutional investors, who, in turn, hire the proxy advisors.
        When we look at market demand and we use the term
    ``investor'' to refer not to the people who invested their
    money, but to the financial intermediaries who control it, it
    can generate incorrect policy insights. In my view, firms like
    BlackRock should be considered intermediaries rather than true
    investors, essentially, custodians of the true investors'
    money.
        Mr. Gooden. If I understand this correctly, kind of moving
    on down the road of some things I heard earlier, is it accurate
    to say that ISS is able to offer advisory services to boards of
    directors while also offering recommendations for how
    shareholders vote? Is that a thing?
        Mr. Griffin. That's correct.
        Mr. Gooden. Do you know of any other industry where such an
    inherent conflict of interest might exist?
        Mr. Griffin. I'm not aware of any. I know that some
    analogous conflicts existed in the auditing and accounting firm
    context, but Congress took action with respect to those.
        Mr. Gooden. The board of directors could be paying for them
    for services, and then, also, they are getting paid to
    recommend to the proxy advisors. Does that seem right?
        Mr. Griffin. It does generate a potential conflict of
    interest, yes.
        Mr. Gooden. Do you think, Ms. Minow, that there is a
    potential conflict of interest there?
        Ms. Minow. Yes, I do. That's why I don't buy ISS services,
    and I do believe that anybody who does want to buy them should
    be able to buy them, understanding what the conflict of
    interest is.
        Mr. Gooden. Interesting.
        Mr. Egan, I think I am hearing that Egan-Jones is taking on
    two duopolistic actors, and in doing so, creating a more
    competitive marketplace. One of those areas that has been a
    particular concern for this Subcommittee has been the ESG
    issues, which are inherently politically charged. Do you know
    how often ISS and Glass Lewis are voting against the boards of
    directors on ESG issues?
        Mr. Egan. I do not.
        Mr. Gooden. OK. I would like to hear more from you, Mr.
    Griffin. This idea of these conflicts of interest, is this a
    thing with a business like Mr. Egan's or is this a problem with
    just the two big ones?
        Mr. Griffin. The specific conflict of interest you're
    referring to arises from the provision of consulting services
    rather than the proxy advisory service itself. My understanding
    is that his firm does not offer those type of services, and the
    two largest proxy advisors do.
        Mr. Gooden. What do you recommend that Congress should do
    to fix that?
        Mr. Griffin. Well, there are a number of potential
    solutions. Congressman Fitzgerald's bill providing for, again,
    disclosure of and regulation of conflicts of interest, Could be
    very beneficial in a number of ways, and something analogous to
    what we did in the accounting firm context for Sarbanes-Oxley
    may be beneficial here.
        Mr. Gooden. Thank you. I would yield my extra time to the
    Chair, if he has anything.
        Mr. Fitzgerald. The Chair is recognized.
        Chair Jordan. No.
        Mr. Fitzgerald. Yes, well, I will recognize the Ranking
    Member for five minutes.
        Mr. Raskin. OK. Thank you very much, Mr. Chair.
        I'm very new to this whole field, but one thing I have
    learned about the proxy service community is that it is one
    that favors alliteration. We have platforms, purses, proxies,
    and practices; concentration, competition, and conflicts of
    interest. Even though they are both ``P'' and ``C'' words, I
    didn't really hear anything about collusion or price fixing.
        Which leads me to believe that the fact that we are in the
    Antitrust Subcommittee today, and we are talking about
    antitrust, it is really the use of a metaphor here. I don't
    know--perhaps, Ms. Minow, you can correct me. Did you hear any
    allegations of an actual antitrust violation from any of your
    fellow witnesses?
        Ms. Minow. I did not.
        Mr. Raskin. OK. Well, I heard a lot about conflicts of
    interest. Just to be clear about this, is a conflict of
    interest an antitrust collusion?
        Ms. Minow. No.
        Mr. Raskin. OK. A conflict of interest is not an antitrust
    violation. I understand that the whole question of conflict of
    interest within this proxy service community is something that
    is heavily discussed and contested within the Securities and
    Exchange Commission and within our colleagues in the Financial
    Services Committee. Am I right about that? Do you know about
    that, the conflict of interest?
        Well, perhaps I can come to you, Mr. Crain. You are using
    antitrust here as a metaphor, the way sometimes people say,
    ``The Democrats and the Republicans are a duopoly. They control
    90 percent or 95 percent of the votes. They control the House
    and the Senate.''
        Sometimes, actually, that duopoly engages in
    unconstitutional practices. In Maryland, if I want to run for
    office, I just need one signature. If I want to run as an
    Independent, not as a Democrat or a Republican, I need 87,000
    signatures.
        Although it is not an antitrust violation, strictly
    speaking, that metaphor helps to understand why there is a
    First Amendment problem there or an equal protection one.
        You are just using antitrust as a metaphor? Am I right?
    Just help me understand. It is not a ``gotcha'' question. I'm
    trying to figure out what we are doing here.
        Mr. Crain. Yes, I think it is a fair question from
    manufacturers' perspectives. They certainly feel the effects of
    this duopoly. I obviously defer to the distinguished Members of
    the Subcommittee about whether and to what extent it is
    officially an antitrust violation, but certainly manufacturers
    have experienced the effects of the market power that these
    firms yield.
        Mr. Raskin. All right, well, let's talk about conflicts of
    interest, then.
        Mr. Egan, your firm was actually charged with
    misrepresentations by the SEC. It was in 2008 or 2009, is that
    right?
        Mr. Egan. We have been in NRSO (phonetic) for a number of
    years. We have been in the business as a rating firm for over
    30 years. There have been a number of regulatory actions.
        Mr. Raskin. Let me just speed ahead because I have got so
    little time. In 2022, you were charged with a conflict of
    interest, is that right?
        Mr. Egan. Egan-Jones and I personally reached a settlement
    order on the rating side with our regulator in 2022.
        Mr. Raskin. In 2022, OK. You were not charged with
    antitrust violations then. You were just charged with a
    conflict of interest, and you settled that with SEC, is that
    right?
        Mr. Egan. We reached a settlement in 2022 with our
    regulator.
        Mr. Raskin. All right. Ms. Minow, do you know whether ISF
    has been charged with a conflict of interest by the SEC?
        Ms. Minow. They have not.
        Mr. Raskin. What about the other one, Glass Lewis?
        Ms. Minow. I don't believe they have. I certainly haven't
    read anything about it. I know that there have been discussions
    about it, but as I said, that is really for their customers to
    judge whether that affects their ability to provide independent
    research or not.
        Mr. Raskin. OK, look, if proxy advisors or the duopolies
    that claim them are so omnipotent and they are allegedly
    colluding to advance so-called progressive proposals against
    corporations, why do the vast majority of the recommendations
    actually align with the management view? I would think that
    this duopoly is much more in service of the corporate State
    viewed from the Right or the Left. Isn't that right?
        Ms. Minow. Ninety-six percent of the recommendations are to
    vote with management on matters like unopposed board members--
        Mr. Raskin. OK. We are having an antitrust hearing about
    whether two firms out of many firms that are operating for-
    profit and not for-profit that advise companies voluntarily who
    want to come and become their customers about how to vote in
    shareholder proposals that are nonbinding are engaged in an
    antitrust conspiracy. This just blows my mind.
        You mentioned one though where I don't know where the
    companies were on this, but Zaslav's salary was rejected. It
    was a $51.9 million salary, and the shareholders voted that
    there was too much money in Disney and the board dropped the
    salary by $16 million. What is wrong with that?
        Ms. Minow. That is exactly how markets are supposed to
    work. I would just say that--
        Mr. Raskin. How did the proxy advisors go on that one?
        Mr. Fitzgerald. The gentleman's--
        Ms. Minow. They recommended a vote against as all the
    financial press. It is objectively too much money for that and
    yet the companies still can ignore it if they want.
        Mr. Fitzgerald. The gentleman's time has expired. The
    gentleman from North Carolina is now recognized for five
    minutes.
        Mr. Harris. Thank you, Mr. Chair, and I thank all of you on
    the panel for your testimony today.
        Mr. Crain, from my understanding of your testimony, your
    organizations argued the proxy advisors should give companies
    an opportunity to provide feedback on voting recommendations
    and to let shareholders see the dialog prior to a vote. There
    was a 2020 rule from the Securities and Exchange Commission
    that did expand transparency in this way, although such
    requirements were later revised and also struck down by the
    courts.
        In your view, was this rule effective at all in improving
    the proxy advisor ecosystem?
        Mr. Crain. Thank you for that question, Congressman. We
    certainly believe that that rule would have been effective at
    enhancing the degree of transparency and reliable, accurate
    information that investors could rely on. As you indicated,
    unfortunately, under the previous administration, Chair Gensler
    rescinded critical parts to that rule, including the provision
    of recommendations to companies so that they could respond
    appropriately and it has been tied up in litigation since then.
    The NAM is actually a party in that litigation and we are
    hopeful that we can defend the SEC's authority, but ISS has
    been steadfast in not wanting to be regulated, so we certainly
    think that there is more work to be done both by Congress and
    by the SEC to ensure that there is an appropriate degree of
    oversight of these powerful actors.
        Mr. Harris. Well, let me just follow that up then. Now that
    this rule is no longer in place, what would you say in your
    opinion should be done to increase proxy advisor transparency?
        Mr. Crain. Thank you for that question again. I think we
    start with the conflicts of interest. Certainly, the Chair's
    legislation about outright banning those conflicts is something
    that we support. From the SEC side, we have long supported
    transparency around those conflicts. Then, the issue that you
    raise at the beginning of your line of questioning of allowing
    the proxy firms to provide to companies draft recommendations
    that they can respond to spot errors and misunderstandings and
    most importantly to convey to investors here are the two sides
    of this issue and then that way they can make an informed
    decision. That is something that we move the ball forward in
    the right direction in the 2020 rule, but there is much more
    work to be done depending on how the outcome of these court
    cases go.
        Mr. Harris. Well proxy advisors exist, obviously, because
    shareholders don't have time to research the company's policies
    before they are called on to help make decisions, so how do you
    think having access to more information would be helpful
    essentially if shareholders don't look at that information, how
    would it improve the proxy advisor's work product?
        Mr. Crain. It is critically important that shareholders
    have access to all the information they need to make an
    informed decision. Unfortunately, under the status quo, we
    often see that proxy advisors robo-vote investors' shares
    before even reading the proxy firm's recommendation to say
    nothing of a potential corporate response to that
    recommendation. We really are starting behind the eight ball
    here in terms of investor understanding of these issues and
    transparency into them. There is much more work that needs to
    be done to ensure that investors have the information that they
    need to make an informed decision.
        Mr. Harris. OK. Thank you very much. Mr. Griffin, when
    Americans invest in funds and companies, these entities have a
    fiduciary responsibility to act in the best interest of their
    investors. Unfortunately, ISS and Glass Lewis have worked
    together to push companies to implement ESG agendas. Does
    pushing recommendations, Mr. Griffin, favor ESG reflect the
    preferences of everyday Americans who are affected by these
    decisions?
        Mr. Griffin. Thank you, Congressman. That the system is set
    up to serve the interests of these intermediaries rather than
    the investors to whom they owe fiduciary obligations. When we
    speak about it being market driven, I think that there are
    important limits on that and to the extent these large
    intermediaries favor the current system, favor the status quo,
    I find that unsurprising because it is designed to serve their
    interests.
        Mr. Harris. In your opinion, what would be the most
    effective way to help insure proxy advisors are serving the
    interests of the American investors and consumers?
        Mr. Griffin. Yhere are a number of excellent proposals
    throughout some of the bills in Congress today. Conflicts of
    interest are particularly a ripe area for looking at just to
    ensure the objectivity and neutrality of the recommendations
    that proxy advisors provide.
        Mr. Harris. Thank you. Thank you very much. Mr. Egan, you
    mentioned in your written testimony that unlike your foreign-
    owned competitors, Egan-Jones Proxy Services is owned and
    operated in the United States. We know ISS is owned by a German
    corporation. Glass Lewis is owned by two Canadian financial
    institutions. What are the concerns surrounding the fact that
    the two leading providers of proxy vote guidance in the United
    States are based abroad? Could you expand on that?
        Mr. Egan. Yes, and thank you for the question. In my
    opinion, the structure of this industry needs attention. The
    reason why I say that is because it is very easy for regulators
    to push on regulated entities without anybody knowing about it,
    without any rules, and without any regulation.
        In the case of one of our competitors, ISS is owned by
    Deutsche Boerse. My presumption is that on a regular basis,
    they are meeting with the regulators because there are so many
    issues connected with the stock exchange. Therefore, those
    regulators, they might have a completely different view than
    what is in the United States for what constitutes something of
    value.
        Mr. Fitzgerald. Thank you. The gentleman's time has
    expired. The gentleman from Illinois is now recognized for five
    minutes.
        Mr. Garcia. Thank you, Chair Fitzgerald. I heard some very
    interesting descriptive language at the beginning of the
    hearing, and I want to ask Ms. Minow three quick yes or no
    questions, hopefully.
        Are you part of a climate cartel?
        Ms. Minow. No.
        Mr. Garcia. Are you engaged in any racketeering?
        Ms. Minow. No.
        Mr. Garcia. Have you participated in any Mafia-style
    shakedowns?
        Ms. Minow. No.
        Mr. Garcia. OK. Today's hearing is supposedly about
    antitrust issues involving proxy advisors, but what is really
    going on here is we are seeing culture war and procorporate
    policies being advanced. Republicans argue that Glass Lewis and
    ISS have too much power and collude to advance so-called woke
    corporate governance. I would agree that any market that is 90
    percent controlled by two entities should be scrutinized and
    proposals to foster more competition should be considered.
    Let's be clear. There is no evidence of collusion between Glass
    Lewis and ISS and what are some of the examples of woke
    corporate governance where these proxy advisors have
    recommended against the company's board's position hasn't been
    made.
        Reporting on the use of child labor in supply chains for
    meat-packing corporations, auditing working conditions at
    Amazon, adopting living wage principles at Walmart, reporting
    by tech companies on the risk posed by generative AI, deriding
    labor rights as woke, gives away the game. Republicans are
    always siding with the bosses over workers, and the irony is
    that these examples of wokeness are outliers.
        Ms. Minow, thank you for being here. Isn't it true that in
    2024, ISS recommended voting with management on 96 percent of
    management proposals?
        Ms. Minow. It is.
        Mr. Garcia. Thank you. In your experience including as
    President of ISS, have you seen any evidence that ISS and Glass
    Lewis are using the recommendations to push a progressive
    agenda?
        Ms. Minow. No.
        Mr. Garcia. You studied at the University of Chicago, did I
    hear you correctly?
        Ms. Minow. I did. I am from Illinois.
        Mr. Garcia. Very well. Thank you. Republicans are trying to
    crush shareholder rights to benefit the corporate executives
    who disproportionately fund their party, and they continue to
    push the narrative about ESG and woke corporate governance to
    distract us from the truth. The truth is we are nowhere close
    to achieving and economic democracy that would empower workers,
    including the worker representation on corporate boards by any
    stretch.
        The truth is as ridiculous as Republican attacks are
    against ESG, we must not allow wealthy corporations to exploit
    ESG as cover for their predatory practices, including union
    busting, worker exploitation, and consumer fraud. The truth is
    that we are living in an oligarchy where increasingly dominant
    corporations and billionaires control most of our government
    and public policy. The fundamental problem is not proxy
    advisors or ESG. It is a government that has been captured by
    the wealthy and serves their interest above those of working
    people.
        I represent a district of working people. If Republicans
    had any interest other than protecting billionaires and wealthy
    corporations, this Subcommittee would be focusing on policies
    that tangibly improve the lives of our constituents. They
    don't. To me that is a betrayal of the real working class in
    America. Thank you, and I yield back.
        Mr. Fitzgerald. The gentleman yields back. I now recognize
    the Chair of the Full Committee, Mr. Jordan, for five minutes.
        Chair Jordan. Thank you, Mr. Chair. Mr. Crain, what
    percentage of publicly traded equity shares are held by
    institutional investors and pension funds?
        Mr. Crain. It is a very large percentage. I forgot the
    exact number. It is North of 80 percent, I believe.
        Chair Jordan. Eighty percent. Because of that, most
    shareholder votes are cast through proxy voting because the
    shareholder can, is that right?
        Mr. Crain. That is exactly correct.
        Chair Jordan. OK, and proxy advisors advise or recommend to
    the institutional investors and the pension funds how they are
    supposed to vote. Is that right?
        Mr. Crain. That is correct.
        Chair Jordan. Is their advice followed?
        Mr. Crain. Pardon?
        Chair Jordan. Is their advice followed? Is the proxy
    advisors' advice typically followed by the institutional
    investors and the pension funds?
        Mr. Crain. It is absolutely followed and in many cases
    their shares are automatically cast by the proxy firms in line
    with those recommendations.
        Chair Jordan. The institutional investors are doing exactly
    what the proxy advisors are told?
        Mr. Crain. That is exactly correct, yes.
        Chair Jordan. Who are the two largest again, who we have
    been talking about?
        Mr. Crain. ISS and Glass Lewis.
        Chair Jordan. ISS and Glass Lewis. How much of the market
    do they control?
        Mr. Crain. Ninety-seven percent.
        Mr. Johnson. Ninety-seven percent of the market, 80 percent
    of the shareholders' equity shares are with institutional and
    pension investors. Their advice is followed 95 percent of the
    time?
        Mr. Crain. That is essentially correct.
        Chair Jordan. Wow. That is pretty big. That is pretty big.
    How much money are we talking about?
        Mr. Crain. Trillions of dollars of equity throughout the
    market.
        Mr. Johnson. Five trillion, 20 trillion, and 30 trillion?
    How much are we talking?
        Mr. Crain. I don't know the size of the market, but it is a
    large number of the equity markets in the United States.
        Chair Jordan. My understanding is it is at least $20
    trillion, and the other side says nothing to look at here.
    Nothing to look at here. Really? That seems like there is a lot
    to look at there and that is why we are having this hearing.
        Now, what kind of advice--so their advice is followed 95
    percent of the time, 70 percent of the market, over $20
    trillion, what kind of advice are they giving?
        Mr. Crain. It is advice on everything that comes before
    shareholders. It is how the company is run, how the executives
    are paid, the shareholder proposals that have been discussed,
    everything that comes before the shareholder base for a vote.
        Chair Jordan. What kind of advice are they given in a
    political context?
        Mr. Crain. We know that ISS, for example, recommended in
    favor of more than 80 percent of ESG shareholder proposals in
    2023.
        Chair Jordan. Pro-ESG, pro-DEI?
        Mr. Crain. As a general rule, yes. Not 100 percent of the
    time, but, yes, as a general rule.
        Chair Jordan. Vast majority of the time?
        Mr. Crain. I would say yes.
        Chair Jordan. OK, so kind of leaning to the Left, right?
        Mr. Crain. I think that is probably a fair
    characterization.
        Chair Jordan. Their advice is followed 95 percent of the
    time, and they have 90 percent of the market, 70 percent of
    these they are giving advice to, and it is always, almost
    always Left wing?
        Mr. Crain. I think that is a fair characterization, yes.
        Chair Jordan. Is that how you see it, Mr. Egan?
        Mr. Egan. I have no reason for disagreeing with that.
        Chair Jordan. What about you, Mr. Griffin?
        Mr. Griffin. That while it varies by year and we have seen
    sort of swings with somewhat mirroring the political election
    cycle, that is--
        Chair Jordan. Is that an accurate picture? Is that an
    accurate framework?
        Mr. Griffin. Overall.
        Chair Jordan. OK, now that is not the end of it, is it?
    Because it is even worse because this duopoly not only offers
    proxy advisor services, but consulting services as well.
        Mr. Griffin. That is exactly right.
        Chair Jordan. You can go consult with them before they give
    you the recommendations that are always followed, and if you
    don't consult with them, they might give you recommendations
    that in many ways harm the company and therefore harm the
    shareholders, is that right, Mr. Crain?
        Mr. Crain. It is and we have seen that when companies get
    negative recommendations from the advice side, they will
    immediately get a solicitation from the consulting side saying
    hey, wouldn't you really like to have us help you out next year
    to avoid those?
        Chair Jordan. Yes.
        Mr. Crain. That is a pretty concerning fact pattern.
        Chair Jordan. Will you pay the protection money? Will you
    pay the shake down?
        Mr. Crain. Exactly.
        Chair Jordan. Holy cow, such a deal. Such a deal. Ms. Minow
    was part of it all when she worked at ISS, is that right? The
    question wasn't for you; it is for Mr. Crain.
        Ms. Minow. I understand that, but he doesn't know the
    answer and I do.
        Chair Jordan. I wasn't asking you a question.
        Ms. Minow. It is wrong. I did not allow--
        Chair Jordan. You might be able to do the consulting
    services and the recommendations--
        Ms. Minow. I did not allow ISS to do consulting when I
    was--
        Chair Jordan. Does ISS do consulting now?
        Ms. Minow. ISS does consulting now and--
        Chair Jordan. There you have it. There you have it. My
    question--the way it works is the members get to ask the
    questions to the people they want to give the answers. My
    question was to Mr. Crain.
        I appreciate you jumping in, Ms. Minow, and telling us that
    ISS does now offer consulting services in addition to the proxy
    advisor thing, which is the problem, which is--well, not the
    full problem, but certainly part of the problem.
        Is that right, Mr. Crain?
        Mr. Crain. I would agree with that, yes, sir.
        Chair Jordan. Then, you can even go even maybe one step
    further and say on the platform no competition is allowed which
    I sort of get Ms. Minow's argument on the Amazon issue, I sort
    of get. It is almost like they have got this thing rigged from
    start to finish and it is two companies. The other side says
    nothing to look at here.
        Well, that is kind of ridiculous and I appreciate the Chair
    and his work on this important issue. With that, I yield back.
        Mr. Fitzgerald. The Chair yields back. The gentleman from
    Georgia is now recognized for five minutes.
        Mr. Johnson. Thank you, Mr. Chair, and I would like to
    offer Ms. Minow the opportunity to fully respond to Mr. Jordan.
        Ms. Minow. Thank you very much, I appreciate it. Yes, when
    I was at ISS, I was President. I did not allow us to do
    consulting services and yet, we were spending a ton of time
    trying to walk corporations through who would call us and say
    we want to understand your system. I understand why they do it
    now. The large institutional investors who choose to use their
    services bake that in.
        Mr. Jordan mentioned the four-percent--
        Chair Jordan. Do you agree with ISS, the decision to--
        Mr. Johnson. It is my time. It is my time.
        Ms. Minow. He mentioned the four-percent where they
    disagree. Interestingly, whenever ISS recommends a vote or
    Glass Lewis recommends a vote contrary to management, what we
    find there, if you look at the numbers, is that the clients
    make up their own minds. That, for example, ISS recommended a
    vote against Elon Musk's ridiculous $58 billion pay package and
    yet, the shareholders voted overwhelmingly in favor of it.
        Mr. Johnson. Great example. Do you believe Milton Friedman,
    since you are a graduate of the University of Chicago, would he
    be turning over in his grave listening to this attack on the
    free-market system that this hearing represents?
        Ms. Minow. He would be spinning like a top.
        Mr. Johnson. Yes. Thank you. Mr. Egan, since 2002, have you
    been involved in the business of proxy advisor services,
    correct?
        Mr. Egan. Since 2002.
        Mr. Johnson. Since 2002, your primary competitors in this
    proxy advisor service industry has been Glass Lewis and ISS,
    correct?
        Mr. Egan. That is correct.
        Mr. Johnson. You have fought your way up to the top. Now,
    you are now the third largest proxy advisory firm operating in
    the Nation, correct?
        Mr. Egan. We have been the third largest for a number of
    years, yes.
        Mr. Johnson. I commend you for that. This hearing gives you
    an opportunity to promote the fact that your company is an
    anti-woke proxy advisor firm, correct?
        Mr. Egan. I would not characterize our firm as an anti-ESG
    firm. We offer ESG--
        Mr. Johnson. Well, I tell you your testimony, your
    testimony reads and looks like a promotional brochure for your
    company. I have never seen anything like it. You are here today
    to basically get some government help in positioning your
    business to become a larger player in this industry. Isn't that
    correct?
        Mr. Egan. In my opinion, no.
        Mr. Johnson. Well, let me ask you this--
        Mr. Egan. If I may answer the question--
        Mr. Johnson. No, let me ask you--
        Mr. Egan. I would be happy to answer.
        Mr. Johnson. I am moving on. I want to ask you about that
    2012 SEC complaint that was filed against you that charged you
    with, among other things, having conflicts of interest. You
    hired the attorney, the same attorney that represents Donald
    Trump, Jr., Mr. Alan Futerfas. Isn't that correct?
        Mr. Egan. Mr. Futerfas is not representing--
        Mr. Johnson. He was your lawyer.
        Mr. Egan. He hasn't represented the firm for over 10 years.
        Mr. Johnson. He was your lawyer though, right?
        Mr. Egan. Probably about 15 years ago, yes.
        Mr. Johnson. The same lawyer that now represents Donald
    Trump, Jr. Are you one of the folks who contributed to Trump's
    inauguration campaign?
        Mr. Egan. We are not.
        Mr. Johnson. Or his campaign?
        Mr. Egan. No.
        Mr. Johnson. OK. You sure are seeking some exposure today
    on this anti-woke tip.
        Mr. Egan. I am here today to provide insight into our
    expediences in--
        Mr. Johnson. You are trying to create a competitive
    advantage. This is like crony capitalism, and I am sure that--
        Mr. Egan. There are some real problems in this industry.
        Mr. Johnson. I am sure that Milton Friedman would not be
    approving of this kind of conduct complicit with a Congress
    that is a rubber stamp to everything that Donald Trump is
    trying to do to put his finger on the free-market system and
    make it such that it works for him and his interests and
    everything else is secondary. With that, I am going to yield
    back.
        Mr. Fitzgerald. The gentleman yields back. The gentleman
    from Virginia is now recognized for five minutes.
        Mr. Cline. Thank you, Mr. Chair. I am going to yield as
    much time to the Chair.
        Chair Jordan. I thank the gentleman. Just a quick question
    for Ms. Minow. Is ISS wrong now that they offer consulting
    services to their clients?
        Ms. Minow. I disagree with it, but I am all in favor of
    every possible option be offered to the market and letting the
    market decide.
        Chair Jordan. Is it wrong?
        Ms. Minow. I don't use those services.
        Chair Jordan. OK. Thank you.
        Mr. Cline. Thank you. I want to restate what the gentlelady
    from Wyoming started with her questioning. Sounds like a racket
    to me.
        Mr. Griffin, ISS and Glass Lewis' 90 percent plus market
    share clearly suggests a violation of Section 1 or Section 2 of
    the Sherman Act. Would you agree?
        Mr. Griffin. Thank you for your question. I am more of a
    corporate governance expert. I am here to talk about that. It
    potentially does, but I am not able to opine on that.
        Mr. Cline. Would DOJ or FTC scrutiny be justified based on
    historical--
        Mr. Griffin. The situation certainly warrants further study
    and more broadly, I would take issue with the characterization
    of this as a market-driven phenomenon and a response to market
    pressure. It is a response to regulatory pressure to vote by
    these asset managers. Also, there are very weak financial
    incentives to respond to the concerns of the actual
    shareholders.
        Mr. Cline. It is pretty clear. The absence of fiduciary
    responsibility paired with high-market concentration supports a
    case for closer antitrust scrutiny or regulatory intervention.
    The opposition seems to believe that these practices are immune
    somehow from antitrust scrutiny simply because they occur in
    the context of shareholder voting. Firms apparently, firms with
    effective monopoly power should be allowed to self-police their
    own competitive and ethical boundaries.
        Mr. Griffin, are ideologically aligned ESG recommendations
    that mirror each other grounds for a Section 1 Sherman Act
    claim due to collusion?
        Mr. Griffin. It may merit investigation. Broadly that
    investment managers are not incentivized to serve interest
    beyond those of the intermediary clients that they possess and,
    in particular, there are very weak ties to the actual
    investors.
        Mr. Cline. Does offering consulting services to the same
    firms you issue proxy recommendations for meet the legal
    threshold for monopoly leveraging?
        Mr. Griffin. It may be an important example of the market
    power they wield and there may be a cross-subsidy essentially
    between the consulting services and their advisory business.
        Mr. Cline. Mr. Crain, how have ESG-driven voting
    recommendations affected your members' costs and operation?
        Mr. Crain. Manufacturers are focused on growing their
    business, delivering return for shareholders, creating jobs for
    American people in every State and every Congressional
    district. To the extent that they are distracted from that
    critically important mission to support the U.S. economy, to
    respond to activists' proposals on the proxy ballot, or to the
    agenda of the proxy advisory firms, that is a distraction from
    the ultimate goal that we would all want to support which is
    that of driving the American economy and creating manufacturing
    jobs.
        Mr. Cline. Have your members reported feeling pressure to
    purchase consulting services from these proxy firms?
        Mr. Crain. They absolutely have. It is a relatively common
    fact pattern that you will receive a negative vote
    recommendation and then soon thereafter receive solicitations
    from the consulting service side of the business, asking if you
    would like to subscribe to avoid negative recommendations in
    the future and just structure your policies in line with what I
    assess and/or Glass Lewis want so that you avoid negative
    recommendations in the future. There is absolutely that degree
    of pressure.
        Mr. Cline. If this type of dual role conflict is done by
    credit rating agencies or financial auditors, wouldn't it be
    just as unacceptable for it to be happening in those areas as
    well?
        Mr. Crain. Congress has stepped in for those regards and
    the SEC did in this case, and unfortunately, that rule has been
    held up in court for the last five years and not been allowed
    to take effect.
        Mr. Cline. Mr. Crain--I am sorry, Mr. Egan, have you ever
    lost business to ISS class loads due to bundled consulting
    services?
        Mr. Egan. Would you mind repeating the question?
        Mr. Cline. Have you ever lost business to ISS and Glass
    Lewis due to bundled consulting services?
        Mr. Egan. Yes.
        Mr. Cline. Wouldn't you say that--can you cite specific
    shareholder proposals or climate-related screens that seem
    ideologically driven rather than industrial oriented?
        Mr. Egan. We see those regularly, but regarding losing
    business, bear in mind that they can charge nothing on the
    proxy advisory business and pick up in compensation on the
    other side of the business and maintain their preferential
    position which is crazy when you think about it.
        Mr. Cline. Yes, that sounds like a scam to me. I yield
    back.
        Mr. Fitzgerald. The gentleman yields back. The gentleman
    from California is now recognized for five minutes.
        Mr. Issa. Thank you, Mr. Chair. Many good questions have
    been asked and I am going to try and close some of them
    together for a moment. Antitrust is complicated and you always
    have to ask things like what is the relevant market and so on,
    but per se when you have just two that control 90 percent in
    general, assuming it is a relevant market, that is monopolistic
    power, correct? Nobody on any side disagrees that we have the
    potential for monopolistic behavior because you have such
    concentration.
        Now, in monopolies, the most common thing that we look at
    is tie-ins, one product being leveraged by another. Is there
    anybody here that doesn't see that at least in the abstract,
    there appears to be a tie-in when the two companies controlling
    90 percent of the market also have a product that is, in fact,
    could be independent, could be spun off, but it isn't because
    it is a tied-in product? OK.
        After all this time of not necessarily all agreeing, we
    have got agreement on those two which means that we have per se
    monopolistic power. We have a tie-in and now what we are trying
    to discover is have they used that tie-in?
        Mr. Egan, I am going to push the envelope of this body by
    reminding people of Godfather 1. In ``The Godfather,'' when the
    Corleones' representative goes out to California and he is
    talking about the things that could go bad like union problems
    and so on, and that the Godfather would be very appreciative if
    he just gives this man a part in his movie and then those
    problems wouldn't exist. He gets thrown out. Then there wasn't
    the union strike, but there was a response.
        In your experience, have you seen that this is essentially
    what is happening. You are being told by others, hey, if you
    hire these guys, things will go better. When you don't, you end
    up with an adverse proxy situation. Isn't that sort of what
    happens? It isn't quite ``The Godfather.'' There is not
    actually a horse in your bed, but in fact, you do see bad
    things happen when you don't hire them and less bad things when
    you do.
        Mr. Egan. I can't disagree with that. In fact, I--
        Mr. Issa. No one disagrees with ``The Godfather.'' It is
    just one of my favorite movies.
        OK, I will open this up at some risk and say if that is the
    case, then shouldn't we and agencies in the Federal Government,
    in general, be looking at a breakup of that power to create a
    tie? Isn't that we are really here on both sides of the aisle,
    hopefully, looking and thinking we should consider? Each of
    you.
        Mr. Egan?
        Mr. Egan. Absolutely. This market has become dysfunctional,
    OK, from our perspective, that you have two companies,
    particularly one company, ISS, controlling the platform with
    consulting. Then, also the proxy advisory one. When we have
    been hired by a major institutional investor and are relying on
    ISS to get information so we can conduct our business, we are
    not getting that information. That information, as I mentioned,
    in my testimony, was when the proxy due date is. If we don't
    have that, it is very, very difficult. They said, hey, listen,
    we are a distributor here. We are not going to give you that
    information. We have been impeded. OK?
        As I said before, they can charge nothing on their proxy
    advisory service and more than make it up on their consulting
    service.
        Mr. Issa. That is why we call it a tie-in.
        Mr. Egan. Absolutely, and this notion of just because it is
    a free market everything is fine, well, with almost every
    single monopoly or duopoly situation, it started off as a free
    market and then it became dysfunctional.
        Mr. Issa. Mr. Crain, you represent so many manufacturers
    who are just trying to compete. They seldom, if ever, have a 90
    percent or a 45  2 market share. Isn't it true that
    one of the biggest impediments to their being competitive is
    when the sources that they want to buy their products'
    subcomponents from have, if you will, a lock on the market of
    90 percent between two vendors. Isn't that the most--isn't that
    by definition what makes the people you represent unable to
    deliver a product is even if they are a diverse group, if they
    are buying from one of two vendors, they get to pay a lot more,
    correct?
        Mr. Crain. That is correct.
        Mr. Issa. Thank you, I yield back.
        Mr. Fitzgerald. The gentleman yields back. This concludes
    today's hearing. We thank our witnesses for appearing before
    the Committee today. Without objection, all Members will have
    legislative days to submit additional written questions for the
    witnesses or additional materials for the record. Without
    objection, the hearing is adjourned.
        [Whereupon, at 11:41 a.m., the Subcommittee was adjourned.]

        All materials submitted for the record by Members of the
    Subcommittee on the Administrative State, Regulatory Reform,
    and Antitrust can be found at: https://docs.house.gov/
    Committee/
    Calendar/ByEvent.aspx?EventID=118422.