On August 5, 2025, a major legal showdown began when the two largest proxy advisory firms in the United States—Glass Lewis and Institutional Shareholder Services (ISS)—filed lawsuits against the state of Texas, targeting a controversial new law that critics argue imposes unconstitutional restrictions on their operations. The legal complaints, filed in the U.S. District Court for the Western District of Texas, seek to block the enforcement of Senate Bill 2337, a measure that dramatically alters how proxy advisors may operate within the state. With the law set to take effect on September 1, the litigation introduces a high-stakes test of free speech rights in the corporate governance space.
Senate Bill 2337, signed into law by Governor Greg Abbott in June, mandates that proxy advisory firms who recommend that shareholders vote against a company’s management must submit a detailed economic analysis justifying their recommendation. Moreover, these dissenting advisory opinions must carry a disclaimer asserting that the advice may not be in the financial interest of the shareholders. On the other hand, proxy advice that aligns with management faces no such requirements, is exempt from additional analysis, and carries no legal risk. This asymmetrical treatment, according to the lawsuits, amounts to viewpoint-based discrimination that favors corporate leadership while penalizing dissent.
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Glass Lewis argues that the law forces it to effectively denounce its own analysis, even in cases where its recommendations are grounded in shareholder value and long-term performance. The firm also contends that the statute compels it to include misleading disclaimers that could confuse clients and undermine investor confidence. ISS echoed these concerns, asserting that the law violates the First Amendment by regulating speech based on its content and viewpoint. The firm also raised constitutional issues under the Dormant Commerce Clause, emphasizing that the law creates burdens on out-of-state firms seeking to do business with Texas-based companies, potentially interfering with interstate commerce.
The lawsuits have already drawn national attention and sparked widespread concern in legal, business, and investment communities. Legal scholars have warned that if the law is upheld, it could set a dangerous precedent by allowing governments to suppress critical voices in corporate decision-making processes. They argue that Senate Bill 2337 not only limits free expression but also threatens the independence of shareholder advisory services, which play a crucial role in holding corporate boards accountable. The worry is that such laws could chill critical analysis, embolden corporate leadership to silence dissent, and ultimately reduce transparency in public markets.
The broader context behind the law is rooted in ongoing political tensions around environmental, social, and governance (ESG) investing, diversity initiatives, and corporate accountability. In recent years, several conservative-leaning states, including Texas and Florida, have pursued legislation that pushes back against what they characterize as ideological overreach by asset managers and proxy advisers. Senate Bill 2337 appears to be part of this wider agenda, seeking to curtail what some policymakers see as activist-driven interference in corporate governance. However, the legal pushback from Glass Lewis and ISS signals that proxy firms are prepared to defend their independence—and that of their clients—through the courts.
Attorneys for the plaintiffs are leaning heavily on recent legal precedents. In 2024, a similar law in Missouri was blocked by a federal judge who ruled that compelled disclaimers targeting specific viewpoints violated the First Amendment. That decision is expected to be cited heavily in the Texas case, as both firms hope to replicate that outcome. The Texas litigation also raises questions about the constitutional limits of state interference in private-sector analysis and advice, particularly when such interference appears to favor one side of a debate—namely, corporate leadership—over another.
For law firms advising corporations, institutional investors, or proxy advisors, the implications of this case are significant. If Senate Bill 2337 survives legal challenge, it could pave the way for other states to enact similar restrictions, potentially leading to a fragmented national landscape where proxy advice is regulated differently depending on jurisdiction. This would introduce legal uncertainty, increase compliance costs, and create complications for institutional investors managing national portfolios.
The case also touches on the delicate balance between regulatory oversight and market autonomy. While states may argue that they have a legitimate interest in protecting shareholders from misleading or politically motivated advice, critics counter that overly restrictive laws will do more harm than good by distorting the flow of information and entrenching incumbent management. Many investors rely on the independence of proxy firms to navigate increasingly complex shareholder votes, including those related to executive compensation, mergers and acquisitions, and board composition. Undermining that independence, some warn, could weaken investor rights at a time when transparency and accountability are more critical than ever.
With the law scheduled to take effect in less than a month, legal observers anticipate an expedited court schedule and the potential for emergency injunctions. Regardless of the immediate outcome, the lawsuits filed by Glass Lewis and ISS represent a pivotal moment in the ongoing national debate over corporate speech, investor influence, and the role of independent advisory firms in the governance ecosystem.
