Now is the time to designate proxy advisors as investment advice fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA). Such a designation is not only necessary to correct long standing concerns, but also to make sure voting recommendations are in compliance with the sole objective required by ERISA, shareholder wealth maximization (SWM). Utilizing voting recommendations that do not have SWM as their objective, e.g., utilizing Environmental, Social, and Governance (ESG) objectives, would be in direct conflict with the fiduciary duties of an ERISA plan manager when managing the shareholder voting rights of a plan.
Being designated investment advice fiduciaries under ERISA would require proxy advisors, like plan managers, to not only be constantly guided by the fiduciary principles of solely in the interest of the participants and beneficiaries, exclusive purpose of providing benefits to them and the prudent man standard in the creation of its voting recommendations for ERISA plans, but also must have, without exception, SWM as their fiduciary objective when creating voting recommendations for ERISA plan managers. This means that ESG objectives cannot creep into these voting recommendations. To explain why this is so, a substantial portion of this Article is devoted to explaining how ESG interacts with the fiduciary duties of ERISA.