AI Is Transforming Proxy Advisory Firms
In a significant shift within the investment landscape, J.P. Morgan Asset & Wealth Management, one of the largest global investment managers, has announced its decision to discontinue the use of third-party proxy advisory firms for U.S. proxy voting. Instead, the firm will utilize a newly launched internal, AI-powered platform known as Proxy IQ to manage all aspects of the voting process for over 3,000 company annual meetings.
This move comes amid intensified regulatory and political scrutiny of proxy advisors in the United States. Recently, an executive order issued by President Donald Trump directed multiple federal agencies to increase oversight of proxy advisory firms, investigating potential violations of antitrust, unfair competition, and deceptive practices laws. The order specifically highlights the market dominance of the two leading firms, ISS and Glass Lewis, which together hold over 90% market share. This executive action asserts that these firms have leveraged their influence to advance politically motivated agendas, particularly in relation to ESG (Environmental, Social, and Governance) and DEI (Diversity, Equity, and Inclusion) issues.
The decision by J.P. Morgan marks a notable inflection point for the proxy advisory industry. It is the first major investment firm to sever ties with U.S. proxy advisors in favor of an internal AI platform. This shift is driven not only by advancements in AI technology but also by the regulatory and political challenges facing proxy advisory firms. Should other investors follow this approach, the market for standardized voting recommendations could experience a significant contraction.
The increased regulatory scrutiny surrounding proxy advisors may compel these firms to offer more customized voting recommendations. For example, Glass Lewis has already announced substantial changes to its research and voting recommendation processes, including plans to cease providing singular voting advice. This decision stems from growing divergences between U.S. and European investor expectations regarding sustainability and corporate engagement.
A transition toward more individualized voting recommendations will inevitably impact issuers. As investors shift away from standardized voting advice, issuers should anticipate more bespoke voting rationales based on each firm’s distinct data, risk models, and policy priorities. This evolution will also lead to greater variability in voting outcomes among their top holders.
In conclusion, the landscape of proxy advisory services is poised for transformation, driven by technological advancement and regulatory scrutiny. As firms like J.P. Morgan leverage AI to streamline voting processes, the industry must adapt to a new era of personalized investor engagement and voting practices.
