Elon Musk tweeted that proxy voting companies have ‘too much power’

Billionaire Elon Musk tweeted that advisers who advise shareholders on how to vote at company meetings have more power because of their influence in passive investment funds.

Musk’s comments add to a long-running debate over whether such advisers have too much power in corporate decision-making.
In a tweet late Monday, Musk said: “Too much power is concentrated in the hands of ‘shareholder services’ companies like ISS and Glass Lewis because a large portion of the market is passive/index funds that outsource shareholder voting decisions to them. .”
Neither ISS nor Enterprise Partner Services declined to comment. Klaus Lewis declined to comment.

Proxy advisors, led by ISS and Klaus Lewis, provide clients with recommendations on everything from electing board members to signing off on executive pay and benefits, such as pension plans, on how to vote.

Musk, owner of Twitter and chairman of electric car maker Tesla, responded to a Twitter thread started by Vivek Ramaswamy, founder of Strive Asset Management, who said it was “shocking” how much influence his biggest adviser, ISS, had on the US state. Investors, Treasurers and Companies.

The comments are Musk’s latest complaint about the markets’ performance and follow earlier criticism of the way Tesla, the electric car company he controls, is valued by investors from an ESG perspective.
In the past, most of the criticism of the two proxy advisors came from corporate executives, when the advisors urged shareholders to vote against board recommendations, and from climate activists seeking support for environmental resolutions.

Academic reviews have found mixed evidence on the impact of proxy advisors. Jill Fish, a law professor at the University of Pennsylvania, found in a 2010 paper that the ISS recommendation shifted 6% to 10% of the vote.
He said by email on Tuesday that the percentage will be lower now that internal vote reviews by top investors have become more complex.

Republican state officials also weighed in, asking the two consulting firms whether their recommendations met their obligations to investors.

Unlike Musk, however, Republicans at the state and national level have accused top passive fund managers of growing too aggressive with their proxy votes, a charge the fund managers deny.

Tesla faced its own disagreements with proxy advisors. Last year, ISS and Klaus Lewis both supported an advisory proposal to increase the ability of investors to nominate directors and recommended voting against two Tesla directors.

The shareholder resolution was passed and the two directors received 68% and 64% of the votes, which was less than is usual for large companies.