Glass Lewis, a leading proxy-advisory firm, has filed its first-ever lawsuit in federal court in Austin, Texas, challenging a newly enacted state law—Senate Bill 2337—set to take effect on September 1, 2025. The law significantly restricts proxy advisers’ ability to recommend voting on environmental, social, governance (ESG), and diversity, equity, and inclusion (DEI) matters unless such advice is accompanied by detailed financial analysis and a disclosure stating that it is not being provided solely in the financial interest of shareholders.
Glass Lewis alleges the statute violates its First Amendment rights, including freedom of speech and freedom of association, and undermines its business model and reputation. The firm argues the law would compel it to deliver messaging it does not endorse, risking both client losses and reputational harm.
Institutional Shareholder Services (ISS), the other major proxy-advisory firm, has filed a parallel lawsuit, with both cases naming Texas Attorney General Ken Paxton as the defendant responsible for enforcing the law.
The legislation, signed by Governor Greg Abbott in June 2025, marks the first of its kind at the state level targeting proxy advisers. It applies to companies incorporated, organized, or seeking approval in Texas, but its broad scope could impact global advisory services provided to investors of major companies headquartered in the state, such as American Airlines, ExxonMobil, and Tesla.
Glass Lewis contends the law’s definitions are overly expansive, potentially sweeping in multiple firms within the proxy advisory ecosystem beyond just the major players. The firm also warns that the law’s implementation could interfere with advice provided to institutional investors across the country, raising concerns over national economic and legal implications.
The legal action in Texas is part of a growing national trend. In recent years, Republican-led states like Missouri and Florida have launched investigations into proxy advisers, accusing them of ideological bias in ESG-related recommendations. However, a federal court previously invalidated Missouri’s efforts, ruling the state’s restrictions unconstitutional—a precedent that Glass Lewis now hopes will influence the outcome in Texas.
Federal courts have also weighed in on the matter. In 2024, a D.C. district court struck down parts of the SEC’s expanded definition of proxy advice as a form of solicitation, ruling that the agency had exceeded its authority. The Fifth Circuit later partially vacated the SEC’s rollback of those changes, deepening the legal uncertainty. In July 2025, a D.C. appeals court upheld the lower court’s decision, reaffirming limits on federal regulatory overreach into proxy advisory services.
Proxy advisers like Glass Lewis and ISS play a critical role in shaping shareholder voting outcomes, especially for large institutional investors. Together, they are estimated to control recommendations for nearly all publicly traded firms in the U.S. Their influence is especially significant in contested board elections, shareholder activism campaigns, and votes on ESG disclosures.
Supporters of the Texas law argue that it enhances transparency and ensures that voting recommendations align with shareholder value. Critics argue that it suppresses free speech, shields corporate boards from oversight, and sets a dangerous precedent by politicizing investment guidance.
Both Glass Lewis and ISS caution that businesses and investors outside Texas could also be affected if the law takes effect. They warn that the statute could chill legitimate advisory activity, restrict institutional investor access to independent research, and diminish shareholder influence in corporate governance.
With roughly 1,300 institutional investor clients, Glass Lewis has a vested interest in halting the law before its scheduled implementation in September. The outcome of this legal battle could reshape how proxy advisers operate nationwide and determine whether states can limit shareholder guidance based on political or ideological grounds.
