For proponents of limited government and free markets, the instinct to oppose federal intervention is both natural and usually correct. The phrase "regulatory crackdown" typically signals a bureaucratic overreach that stifles innovation. However, regarding the duopoly of proxy advisory firms—Institutional Shareholder Services (ISS) and Glass Lewis—conservatives must fight the urge to view this as a standard "market vs. state" conflict.

The current dominance of proxy advisors does not represent a free market; it represents a systemic violation of property rights and fiduciary duties. Reining them in is not an act of "statist interventionism," but a necessary restoration of the legal framework required for capitalism to function.

The Committee for Justice recognized this structural deformity years ago. In our 2020 comments to the Securities and Exchange Commission, we warned that unlike standard market participants, proxy advisory firms are "insulated" from the competitive forces that typically drive firms with poor service records out of the market. We noted then that retail investors were overwhelmingly concerned about the lack of transparency and the mechanism of "robo-voting," where institutional investors automatically cast votes in lockstep with advisory recommendations.

Since those comments were filed, the distortion has only worsened. A disturbing divergence has emerged in the marketplace: while major asset managers like BlackRock and Vanguard have begun retreating from environmental, social, and governance (ESG) activism—recognizing their fiduciary obligations—proxy advisors have doubled down. Support for ESG proposals among asset managers has plummeted, yet proxy advisors continue to recommend voting for them at significantly higher rates. This widening gap raises a fundamental question: are proxy advisors acting in the financial interest of investors, or are they advancing their own ideological preferences under the guise of governance advice?

This "robo-voting" dynamic allows proxy advisors to wield outsized power over trillions of dollars in "passive" capital. This creates what scholars accurately describe as "plunder." It is a scheme to use shareholder funds to subsidize a political agenda without the owners' consent. When resources are diverted to social engineering rather than wealth maximization, agents are effectively stealing from the owners. By automatically casting votes on behalf of vast swaths of passive capital, proxy firms are misappropriating the private property of future retirees to purchase political outcomes those retirees never sanctioned.

The fundamental error lies in treating the modern corporation as a political entity rather than an economic one. As founder of the field of law and economics Henry Manne argued, "A corporation is not a small republic." It has no governmental powers. Shareholders enter a risk-assumption contract where the vote attached to a share is an economic asset designed to protect investment value, not a political ballot. Proxy advisors have hijacked this economic asset, transforming corporate governance into a vehicle for political activism that degrades the value of the underlying property.

This brings us to the core violation of the Consumer Welfare Standard, the bedrock of proper antitrust analysis championed by Robert Bork. Bork taught that the only legitimate goal of antitrust is the maximization of consumer welfare—essentially, the wealth of the nation. Actions that restrict output or degrade quality harm this welfare. When proxy advisors force companies to prioritize political signaling over efficiency, they are degrading the quality of corporate governance and restricting economic output.

State officials are already waking up to this violation of duty. The Florida Attorney General has sued ISS and Glass Lewis, alleging they utilized their dominance to mislead investors and weaponize recommendations. Similarly, the Missouri Attorney General has launched investigations into whether these firms are prioritizing ideology over the financial interests of the state’s citizens. Senator Bill Hagerty (R-TN) has correctly identified that these firms "exploit their market power to suppress competition... and undermine the welfare of American investors". These officials are not "interfering" in the market; they are policing fraud and breach of contract.

Libertarian hesitation to intervene often stems from a fear of disturbing the "market process." However, the Austrian economists, particularly Friedrich Hayek, understood that a free market is not a lawless vacuum. It requires an "intelligently designed and continuously adjusted legal framework" to prevent fraud and deception. Freedom of economic activity means "freedom under the law," not the license for agents to defraud principals.

We must recall the insights of Israel Kirzner regarding the market as a "discovery process." In a functioning market, entrepreneurs rely on price signals—profit and loss—to discover where resources are most needed and how to correct errors. When proxy advisors force corporations to make decisions based on ESG scores rather than profit potential, they "blind" the market. They introduce static that masks the true price signals, making it impossible for entrepreneurs to "discover" the most efficient use of resources. If the signal is political rather than economic, the discovery process that drives economic growth is short-circuited.

Therefore, requiring proxy advisors to stick to economics is not an expansion of the administrative state; it is a check on the "ministerial class" that has arisen within the private sector. It is a defense of the individual investor against the "soft tyranny" of elites who believe they know how to spend our money better than we do. To stand idly by while property rights are eroded in the name of "hands-off" economics is to misunderstand the very nature of capitalism. We must enforce the law of property and contract so that the market may once again serve the consumer rather than the political whims of the proxy duopoly.

Disclaimer: The opinions and views expressed in this article are those of the author and not necessarily those of The National Law Review.