The power of proxy advisory firms cannot be overstated, even if it is little known. Over the last couple decades, shareholder proposals have morphed from an opportunity for investors to weigh in on company matters to an avenue that a small group of activists utilize to push agendas. The shift, and explosion in sheer amount of proposals, has come in large part due to the Securities and Exchange Commission’s (SEC) overinterpretation of past rules, as ACI outlined in a paper earlier this year.

Glass Lewis and Institutional Shareholder Services (ISS), the two largest advisory services, control an estimated 97 percent of the market and can sway up to 30 percent of shareholder votes when recommending a proposal. These firms essentially form a duopoly in a small, but very influential sector. Asset management firms, having faced intense scrutiny regarding environmental, social and governance (ESG) investment criteria, are now voting less and less in line with the duopoly’s environmental and social recommendations.

Having reacted to the market and conservatives’ criticism, BlackRock, the world’s largest asset manager and favorite target of conservatives’ ire, announced it was adding a third proxy advisory service to its Voting Choice program. Egan-Jones Proxy services, a top three proxy guidance, voting and solutions provider, will provide new proxy policies for the program starting in July 2024. The firm will offer a “wealth-focused policy” that seeks to “protect and enhance the wealth of investors” and one that “does not prioritize environmental or social goals.”

The move comes as part of a larger goal to provide clients with more opportunities to participate in proxy voting, allowing them to vote in a manner more in line with their personal views or preferences.

Expanding client choice in a sector so heavily dominated by two firms and a cumbersome regulatory regime could have ripple effects as more fund managers reevaluate proxy voting. Increasing voting optionality also illustrates that financial titans are listening to the market, and recognizing the need for change in the face of public backlash and lackluster ESG returns.