Texas AG files lawsuit against proxy advisor firm claiming bias while claiming objectivity

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(The Center Square) – Texas Attorney General Ken Paxton filed a lawsuit against proxy advisor firm Glass Lewis alleging it incorporated ESG- and DEI-related materials into its advisory services, violating its advertisement as objective.

Executive director of Consumers’ Research Will Hild told The Center Square that “Glass Lewis has spent years prioritizing racist DEI quotas, climate activism, and other outdated ESG policies while claiming to serve investors' financial interests.”

“This deception is not just financially reckless but also illegal and must be met with consequences,” Hild said 

“That is exactly why Consumers' Research has supported Texas's new law, which ensures proxy advisory firms Glass Lewis and ISS can no longer operate in the dark and must disclose when their advice to investors is not based solely on financial interest,” Hild said.

“This lawsuit from Attorney General Ken Paxton is just another example of Texas leading the way to stop woke agendas and protect consumer investments from political activism,” Hild said.

Neither Attorney General Paxton’s press office nor Glass Lewis have responded to The Center Square’s individual requests for comment.

Paxton’s lawsuit argued that “instead of providing objective and impartial investment advice, as advertised, Glass Lewis provides advice influenced by its own Environmental, Social, and Governance ('ESG') ideological considerations, apart from its clients’ best financial interests."

As an example, the lawsuit used the claim from Glass Lewis’ Benchmark Proxy Voting Guidelines that says “[c]ompanies face significant financial, legal and reputational risks resulting from poor environmental and social practices,” so “in cases where the board or management neglected to take action on a pressing issue that could negatively impact shareholder value, we believe that shareholders should take the necessary action in order to effect changes that will safeguard their financial interests.”

The lawsuit also outlined Glass Lewis’ diversity, equity, and inclusion (DEI) tactics by bringing up the firm’s guidelines that call for all boards to establish a “nominating and governance committee” that is “reasonably diverse on the basis of age, race, gender, and ethnicity.”

“Glass Lewis recommends voting against the entire board of directors and all director nominees up for election if the board does not have such a committee and 'the board did not implement a shareholder proposal that received requisite support,’” the lawsuit said.

“Glass Lewis’s actions resemble those of an ESG activist forcing companies to comply with rules that governments will not otherwise adopt and that instead align with Glass Lewis’s own views on society’s environmental and social needs,” the lawsuit said.

Paxton requests in his complaint that the court “order Glass Lewis to make clear and conspicuous representations to U.S. consumers that its proxy advising services are not made from a purely financial standpoint and focus heavily on ESG initiatives.”

Paxton also requests that the court “enjoin Glass Lewis from providing proxy advisory services without providing customers with a clear and conspicuous notice of Glass Lewis’s focus on ESG initiatives.”