Summary
The U.S. Department of Justice (DOJ) has withdrawn a 1987 Business Review Letter (BRL) previously issued to Institutional Shareholder Services (ISS), stating that the company’s current business model no longer matches the representations on which the letter was based. The Antitrust Division said ISS has expanded beyond proxy voting advice into corporate consulting services, making the decades-old letter inapplicable. The move does not declare proxy advisory services unlawful but signals increased scrutiny of competition in the proxy advisory market.
Key highlights
| Item | Details |
|---|---|
| DOJ action | Withdrawal of 1987 Business Review Letter |
| Company involved | Institutional Shareholder Services (ISS) |
| Reason | Current business model differs from 1987 representations |
| Market concentration | ISS and Glass Lewis control over 90% of the proxy advisory market |
| DOJ position | Proxy advising is not inherently problematic, but competition concerns remain |
| Focus | Corporate consulting, market concentration, antitrust compliance |
Why the DOJ withdrew the 1987 Business Review Letter
The Justice Department’s Antitrust Division announced that it is withdrawing the 1987 Business Review Letter issued to Institutional Shareholder Services (ISS), a foreign-owned proxy advisory firm that advises institutional investors on voting at shareholder meetings.
According to the DOJ, the withdrawal reflects significant changes in ISS’s business model since the letter was issued nearly four decades ago. Officials said the company’s current operations extend beyond the activities described in the original request for antitrust review.
What the 1987 letter originally covered
When the Antitrust Division issued the letter in 1987, the proxy advisory industry was still developing. At that time, ISS represented that it would provide advice only on shareholder voting and corporate governance matters and would not advise companies on their business operations or corporate activities.
Based on those representations, the DOJ stated that it had no intention at that time to challenge the establishment or operation of ISS under the antitrust laws.
DOJ says ISS’s business model has changed
The Antitrust Division said ISS now provides corporate consulting services in addition to proxy voting advice. According to the DOJ, those consulting activities fall outside the scope of the representations made in 1987 and are inconsistent with the assumptions underlying the original Business Review Letter.
The department emphasized that a Business Review Letter reflects only the Antitrust Division’s enforcement intentions at the time it is issued. It does not prevent the department from taking future enforcement action if business practices change or new competition concerns arise.
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Proxy advising itself is not the issue
The DOJ clarified that proxy advisory services are not inherently anti-competitive. It also stated that investors’ lawful exercise of voting rights based on proxy advisor recommendations does not, by itself, raise antitrust concerns.
However, officials said the withdrawal is necessary because the 1987 letter no longer reflects ISS’s current business practices or the Antitrust Division’s assessment of those practices.
Market concentration raises competition concerns
The DOJ noted that ISS and Glass, Lewis & Co. LLC (Glass Lewis) together control more than 90% of the proxy advisory market. Their recommendations influence voting decisions affecting many of the largest publicly traded companies in the United States.
According to the Antitrust Division, such market concentration gives the firms significant influence over corporate governance policies and warrants continued scrutiny under the antitrust laws.
The department also noted that it has previously expressed concerns about competition in the proxy advisory industry, including comments submitted to the Securities and Exchange Commission during its 2020 rulemaking on proxy voting advice.
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DOJ’s broader antitrust enforcement focus
The Antitrust Division said the withdrawal aligns with its broader efforts to promote competition and ensure compliance with federal antitrust laws.
The department recently clarified that antitrust safe harbors for passive investment generally protect ordinary corporate governance advocacy. However, they do not shield the use of common ownership in competing companies to coordinate market-wide reductions in output or engage in other anti-competitive conduct.
What the withdrawal means
The DOJ emphasized that withdrawing the 1987 Business Review Letter does not constitute an enforcement action against ISS. Instead, it removes a decades-old statement of enforcement intent that no longer reflects the company’s current operations.
The Antitrust Division said it will continue monitoring competition in the proxy advisory market and will enforce antitrust laws where necessary to protect competition, reduce barriers to entry, and promote fair market practices.