Why Trump’s attack on proxy voters matters

The year 2019 seemed like an “end of history” moment for ESG and “stakeholder” capitalism. Just as political scientist Francis Fukuyama had declared, after the fall of the Berlin Wall, that liberal democracy had won the 20^th-century ideological battle, by 2019 the notion that companies must be run solely for the benefit of shareholders seemed to be left for dead. Stakeholder capitalism had won out.

Recall that back in early 2019 one of the key developments to emerge from the World Economic Forum was the “Davos manifesto”. 

Seven of the world’s largest consultancy firms scrambled to ensure they were seen as part of the initiative. PwC, Deloitte, EY, KPMG, McKinsey, Boston Consulting Group and Accenture collaborated in the development of a universal set of metrics for ESG reports. It became known as the “Stakeholder Capitalism Metrics” project and it was published, without much fanfare, in 2020. 

It wasn’t just the big consultancy firms behind the push. The large global investment funds appeared to be even more enthusiastic. Larry Fink, founder and CEO of BlackRock – the world’s largest asset management company – was a leading promoter. 

Purpose and profits, according to Larry Fink

Each year, Fink used his annual letter to the CEOs of the thousands of companies in which BlackRock invested to encourage adherence. Writing about the “inextricable link between purpose and profits”, he called on company executives to drive action on societal issues.  

“People are demanding that companies have a social purpose and demonstrate leadership on key issues. They are right to: without a sense of purpose, no company, either public or private, can achieve its full potential or meet its obligations to society.” 

With $13.52-trillion assets under management, Fink held a lot of sway. 

Not to be left out of the hot new corporate trend, Jamie Dimon, chair and CEO of JPMorgan, one of the most powerful banking institutions in the world, added his voice to the clamour for a new corporate governance model. It was to be one focused not just on shareholder profits but also on the interests of employees, customers, suppliers, communities and the environment. 

In August 2019 Dimon, who said the American dream was alive “but fraying”, led the powerful Business Roundtable when it released a statement redefining corporate responsibility beyond shareholder primacy. The purpose of a corporation, it said, was to promote an economy that serves all Americans.  

It was a sharp U-turn on the Business Roundtable’s previously held commitment that corporations exist principally to serve shareholders. 

But just as liberal democratic governments have failed not only to take over the world after the collapse of the Soviet Union, but in cases yield to extremist political parties, ESG-backed stakeholder capitalism is now firmly on the back foot. 

And, it’s all thanks to one man.  

Enter Trump 

US President Donald Trump’s latest assault on ESG comes in the form of a threatened executive order that would restrict the role of proxy-advisory firms. The US and international markets are dominated by two players: Institutional Shareholder Services (ISS) and Glass Lewis. (Not helping matters is that the former is Canadian-owned and the latter Deutsche Bank-owned.)  

The proxy service is designed to deal with the increasing complexity of public share ownership in a world in which the beneficial share owner is often several degrees away from the registered shareholder who does the voting. 

For example, an institutional fund manager does not actually own the shares in the fund but manages them on behalf of other parties, such as groups of individual savers or workers.  

So, many fund managers turn to proxy advisers to help them deal with the thousands of votes on resolutions put to shareholders at AGMs every year.  

And over the years the proxy advisory firms have tended to tilt towards a pro-ESG approach. 

The ‘Proxy Advisory Cartel’

As one South African institutional fund manager explains to Currency, the proxy advisers have efficient platforms designed to handle AGM voting. Clients can upload their own proxy voting policies (which most have), or they can default to the proxy adviser’s voting policy.  

“The proxy advisers’ recommendations are generally based on well-known best principles so, rightly or wrongly, defaulting to their system has become something of an accepted practice,” says the fund manager. She adds that if she is voting against a resolution, she will engage with a proxy adviser to check on best practice. 

It is this power-by-default that has agitated Trump and his followers.  

His recent threats – one even suggesting advisory firms be banned from giving voting recommendations – will come as no surprise to anyone who watched the House committee on financial services hearing in June.  

During the hearing, which was titled “Exposing the Proxy Advisory Cartel”, the chair alleged these foreign-owned advisers used their power to act as de facto regulators of US companies. “They set their own politically motivated agenda … and are not elected officials answering to American voters,” said Scott Fitzgerald, who chaired the hearing. 

The committee heard the proxy advisers could sway about one-third of the vote on any shareholder proposal. 

The Tesla connection

Elon Musk supporters reckon the recent Tesla shareholders’ meeting called to vote on his trillion-dollar remuneration package made a move by Trump inevitable. Both proxy advisers recommended shareholders vote against the package. 

It’s not just the proxy advisers who may have to devise a whole new business model. Trump is also going after large index fund managers such as BlackRock, Vanguard and State Street. He is looking into executive orders that would require these fund managers to cast shareholder votes in line with how their clients instruct them. This would prevent the fund managers from exercising independent judgment and would significantly reduce the power that players such as Fink currently wield. 

In anticipation of a clampdown by the Trump administration the three firms have already put new systems in place to give their clients more say in how their shares are voted. 

But, as any local fund manager will tell you, there’s still the problem of how to get more of the beneficial owners to vote their shares. It takes time, knowledge, skill and commitment which many shareholders may not have, even if they wanted. 

If these shareholders fail to come to the party, then the whole concept of shareholders holding the board to account falls apart. Companies will be run by their boards without interference from shareholders. Which is probably just how Trump would like it.  

We could wait for Davos 2026 to get confirmation, but right now it is looking as though we’re approaching the end of the brief era of stakeholder capitalism. 

The next phase: board-driven capitalism? 

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