More State Action: State Proxy Advisory Firm Laws Spawn More Litigation

Key Takeaways

• Texas law first regulated proxy advisory firms in 2025
• Indiana and Kansas enacted similar statutes effective July 1 2026
• Glass Lewis sued Indiana; ISS sued Kansas over vague compliance rules
• Firms argue state laws cannot assign monetary value to many shareholder votes
• Potential litigation may reshape proxy advisory market and corporate governance standards

Pulse Analysis

The wave of state‑level proxy advisory regulation began with Texas’s groundbreaking 2025 law, which imposed disclosure, licensing, and fiduciary duties on firms that advise institutional investors on voting. Lawmakers in Indiana and Kansas, eager to replicate Texas’s perceived consumer‑protection benefits, passed parallel statutes that will become operative on July 1 2026. While the intent is to curb perceived conflicts of interest, critics argue the statutes are overly broad, lacking clear standards for how advisory firms should quantify votes on non‑financial matters such as board attendance or symbolic proposals.

In response, Glass Lewis and Institutional Shareholder Services have each launched federal lawsuits challenging the new statutes. Glass Lewis’s complaint against Indiana contends that the law forces the firm to assign dollar values to votes—a task it deems impossible for many governance issues. ISS’s suit in Kansas echoes this concern, emphasizing that the statutes ignore the qualitative nature of many shareholder decisions. Both firms warn that compliance would impose an “overwhelming” administrative burden, potentially diverting resources from core analytical work and increasing litigation risk for the firms themselves.

The outcomes of these cases could set a national precedent for the balance of power between state regulation and the proxy advisory industry. A court ruling that curtails the statutes may preserve the sector’s analytical independence, while upholding them could usher in a new era of state‑driven governance standards, prompting firms to redesign their methodologies. Companies relying on proxy advice should monitor the litigation closely, as any shift in regulatory expectations could affect voting outcomes, shareholder engagement strategies, and ultimately, board composition decisions.