Plain English. ISS is a registered investment adviser: within the scope of its client relationships it owes the Advisers Act’s fiduciary standard — and the Act itself gives those clients no damages action when the standard is breached. Glass Lewis is not registered and has long maintained it is not an investment adviser at all; that is a legal position, not an adjudication — nonregistration alone does not settle § 206 coverage — and Glass Lewis announced in November 2025 that it will register. Either way, federal law today polices what these firms affirmatively say — misstatements and half-truths. The one omissions duty that exists, ISS’s Advisers Act fiduciary duty to its own subscribing clients, runs to those clients alone and is privately unenforceable in damages; no omissions duty runs to the market. The schematic below shows the design that closes that gap: attach a registration-neutral disclosure duty to the furnishing of paid proxy voting advice — drafted on the premise that the advice itself remains protected speech — rather than leave coverage to registration status, measure it by the Supreme Court’s total-mix materiality standard, and specify who enforces it. Every element marked PROPOSED is a legislative design choice, not a description of current law; everything else is cited to a controlling authority.
Academic framing. The design problem is a mismatch among duty, standard, and remedy. The fiduciary standard exists — Advisers Act § 206, as construed in Capital Gains, 375 U.S. 180, 191–94 (1963) — but runs only to the advisory client and, after Transamerica, 444 U.S. 11 (1979), is privately unenforceable in damages. The disclosure standard exists — TSC’s total-mix materiality, 426 U.S. 438, 449 (1976), adopted for Rule 10b-5 by Basic, 485 U.S. 224, 232 (1988) — but attaches to no proxy-advisory duty after ISS v. SEC removed paid voting advice from § 14(a) “solicitation.” And the omissions gap is structural: under Macquarie, 601 U.S. 257, 263–65 (2024), Rule 10b-5(b) “does not proscribe pure omissions.” Misstatement and omission are therefore distinct pathways: half-truths already reach both firms on existing elements; the conflict-omission pathway alone has no market-facing federal source. The architecture below supplies the one missing element — a statutory duty attached to the commercial act of furnishing paid advice — and imports the standard, the constitutional lane, and the enforcement machinery from settled doctrine rather than inventing any of them.
Open the design schematic
The arc this schematic answers. One by one, the instruments that built this industry’s regulatory position have been withdrawn, pared back, or judicially narrowed. The Justice Department’s 1987 business review letter — pulled August 5, 2026. The SEC staff’s 2004 no-action letters (Egan-Jones, May 27, 2004; ISS, Sept. 15, 2004), which made reliance on an independent third party the recognized way for an adviser to vote through its own conflicts — withdrawn September 13, 2018. The SEC’s 2020 proxy-advice rules — two of them rescinded in 2022 (a rescission the Fifth Circuit partly vacated in 2024), and the § 14(a) hook read out from under what remained by ISS v. SEC in July 2025. What is left is neither a regulated industry nor a deregulated one: the proxy-specific scaffolding came down piece by piece — while the adviser-fiduciary, voting-authority, and general antifraud rules in Step 1 remain — with nothing market-facing put in its place. That is the gap this schematic is designed to close.
Figure 7 · The accountability architecture — six steps, current law to remedy
ISS — registered investment adviser
- Advisers Act § 206 imposes an affirmative duty of “utmost good faith, and full and fair disclosure of all material facts” — SEC v. Capital Gains Research Bureau, 375 U.S. 180, 194 (1963), itself an undisclosed-conflict case i
- The duty runs to ISS’s subscribing clients only — not to issuers, not to states, not to beneficial owners
- No private damages action under § 206 — Transamerica Mortgage Advisors v. Lewis, 444 U.S. 11, 19–24 (1979); § 215’s limited contract remedies — voiding, rescission with restitution — are the only private remedies the Act itself supplies — contract and state-law claims are unaffected. Public enforcement rests with the SEC. i
- The SEC’s proxy-voting rule, Rule 206(4)-6, applies when an adviser “exercise[s] voting authority” — coverage turns on the services and authority actually delegated in each engagement, not on a firm-wide label; research-only advice and vote execution are not legally identical i
- Antitrust posture, updated Aug. 5, 2026: DOJ withdrew ISS’s 1987 business review letter, citing the consulting expansion and the two firms’ control of more than 90 percent of the market — DOJ release. A withdrawal, not an enforcement action — but the two-sided-market conflict that enumerated disclosure 1 addresses is now on the federal antitrust record (§ 5.3)
Glass Lewis — unregistered
- Glass Lewis’s own stated position: it “should not be deemed an investment adviser as defined in Section 202(a)(11) of the Advisers Act” — Statement of Record, SEC proxy-process roundtable (Nov. 2018); its June 1, 2018 response to Sen. Heller takes the same position
- On November 25, 2025, CEO Bob Mann announced that Glass Lewis “will register with the U.S. Securities and Exchange Commission (SEC) as an investment adviser” and will move to multiple research perspectives and client-custom frameworks — Glass Lewis announcement. The asymmetry described here narrows going forward
- Nonregistration does not itself settle § 206: the SEC’s own Section 913 study states that “[a]n unregistered investment adviser is subject to the Advisers Act’s antifraud provisions” — SEC, Study on Investment Advisers and Broker-Dealers 17 & n.61 (2011). The contested threshold question is whether Glass Lewis is an “investment adviser” under § 202(a)(11) at all
- Third-party corroboration on the SEC’s own record: “not registered as an investment adviser … not currently subject to any regulatory supervision” — Society for Corporate Governance letter (2018), at 10
- The one proxy-specific federal regime that ran to the market was Exchange Act § 14(a) — closed as to the paid, requested advice itself, below. Affirmative misstatements and half-truths remain separately actionable under generally applicable antifraud law, on that law’s own elements
The gap — the standard is not missing; the person entitled to insist on it is
No affirmative federal disclosure duty runs to the market: not to the issuer whose law the recommendation describes, not to the state whose statute it characterizes, not to the beneficial owners whose shares are voted. What survives for both firms is liability for affirmative misstatements and half-truths under generally applicable law, each on its own elements; conflict silence is not market-facing actionable against either firm — ISS’s silence toward its own clients remains SEC-enforceable under § 206, without a private damages action. And the fiduciary coverage that does exist is asymmetric and contested — one firm registered and supervised, the other unregistered with its adviser status disputed (and a registration announced) — while no regime supplies a transaction-specific disclosure duty for the advice itself. A market-wide federal duty is Congress’s alone to create; the narrower state instruments — preserved fraud-and-deceit enforcement and public-fund purchasing — are cataloged in Step 5.
New Exchange Act § 14(l) — covered proxy voting advice i
- The trigger is registration-neutral and transactional — furnishing paid advice on a specific vote — the institutional model Congress built for credit rating agencies in the Credit Rating Agency Reform Act of 2006 and strengthened in Dodd-Frank (2010): Exchange Act § 15E registration, conflict management, the revolving-door conflict look-back (§ 15E(h)(4)(A)(ii)), and annual examinations (§ 15E(p)(3)). The design borrows § 15E’s process-and-integrity architecture while assuming the advice itself remains protected speech (Step 4) — it claims no commercial-speech shortcut
- Applies “whether or not such advice constitutes a solicitation under subsection (a)” — the clause that answers the D.C. Circuit directly: Congress speaking, not the agency reinterpreting. This is the design’s principal refinement of the bill already pending: H.R. 8286 § 601, as reported June 24, 2026, itself proposes a § 14(l) — but anchors it “for purposes of subsection (a) and Rule 14a-9,” the very hook ISS v. SEC held does not reach paid, requested advice. CGI’s drafting judgment: a freestanding duty avoids relitigating § 14(a)’s scope; a deeming rule anchored to the closed hook would invite it. And the bill’s registration title has a second gap its own text creates: the reported definition of “proxy advisory firm” “does not include … a registered investment adviser” — a § 15H that would not reach the largest firm. The registration-neutral trigger here is the repair for both
- Creates the express omission duty Macquarie shows is otherwise missing. Under current law, “representations that state the truth only so far as it goes, while omitting critical qualifying information” are actionable, but pure omissions are not — Macquarie Infrastructure Corp. v. Moab Partners, 601 U.S. 257, 264 (2024) (unanimous). A recommendation does not implicitly assert “we are not suing this state” — so Congress must require the disclosure expressly rather than treat every omission as a half-truth. No fiduciary relationship required; reaches registered and unregistered firms alike; the duty runs to the recipient of the advice. Two pathways, kept separate: affirmative misstatements and half-truths are actionable today under existing law’s own elements; an omitted enumerated item becomes actionable only through this statute — and then only where the omission is material under TSC’s total-mix standard (Step 3). The limiting principle is built into the trigger, not bolted on i
- Companion § 15H PROPOSED: registration, conflict controls, methodology adherence, and SEC examinations — imported from the credit-rating-agency architecture of Exchange Act § 15E: annual examinations (§ 15E(p)(3)) and the revolving-door conflict look-back (§ 15E(h)(4)(A)(ii)) — a general correction duty is this design’s own addition, not imported architecture
Issuer-paid consulting
Any consulting or ratings relationship with the issuer that is the subject of the advice.
Ownership & affiliates
Owners’ and affiliates’ interests bearing on the subject matter of the recommendation.
Litigation & legal interests
Any direct financial, contractual, or legal interest of the provider or an affiliate in the outcome of the vote, or in the validity or application of a legal rule that is a principal stated basis of the recommendation.
Policy provenance
Whether the recommendation is the house benchmark or the client’s own custom policy.
Legal assumptions + correction on notice
Material legal assumptions stated; known material errors corrected once noticed.
Register note (disclosures 1 and 5). Of the twelve publicly documented adviser recommendations on 2026 Texas reincorporation votes in CGI’s August 6 register, eleven were against; the exception is ISS’s support for Natural Gas Services (report dated May 22, 2026, ahead of its June vote). Most company-level recommendations are never public, and several documented cells rest on secondary reporting. The correction-duty case: the June 23, 2026 Senate State Affairs interim hearing (testimony record; § 5.3 above), and ExxonMobil’s rebuttal filing, which says the ISS report’s page 29 states a flat 5% books-and-records requirement while the report’s own page 27 notes the six-month alternative — pleaded by the issuer, not adjudicated (DEFA14A, May 15, 2026).
“There must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”
TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) — quoted verbatim in the statute as the materiality limit. Adopted for Rule 10b-5 by Basic Inc. v. Levinson, 485 U.S. 224 (1988): the doctrine’s home ground is proxy voting. i
TSC at 449: no proof required that disclosure would have changed any vote — a passed proposal does not answer materiality (outcome may still bear on causation and remedy)Drafted for protected speech i
The design assumes proxy advice remains fully protected speech. The Kansas court held the recommendations “are the product” — not advertisements — and that compensation “does not transform the voting recommendations into commercial speech” (order at 17); Chiles v. Salazar confirms First Amendment protections extend to licensed professionals “much as they do everyone else.” The defense is narrowness: every duty compels a checkable fact about the speaker, applies symmetrically to recommendations for and against management, and leaves the recommendation’s direction untouchable. Zauderer’s factual-disclosure lane, if it applies, helps — the design does not depend on it.
What the enjoined statutes did instead
Triggers keyed to “nonfinancial factors” and divergence from management — viewpoint-based and vague. Preliminarily enjoined three times: Judge Alan Albright, W.D. Tex. (Aug. 29, 2025); Judge Holly L. Teeter, D. Kan. (June 24, 2026); Judge Matthew P. Brookman, S.D. Ind. (June 26, 2026). And the Kansas order carries the strongest sentence against any recommendation-level mandate, viewpoint-neutral or not: “But SB 375 would still compel speech. And compelled speech is still evaluated under strict scrutiny except in some exceptional and narrowly drawn categories” (order at 16). If strict scrutiny is the test, the interest must be named: protecting investors from undisclosed conflicts in paid advice they rely on in voting other people’s money — an interest no court has yet weighed against a viewpoint-neutral, enumerated duty. Narrow tailoring is the design’s answer; “untested” is the honest label. Materiality narrows and neutrality helps — neither is a guaranteed safe harbor. The claim here is “more defensible,” not “immune” — and it is why the buyer-side lanes in Step 5 carry this design’s least-litigated path.
SEC the seat
§ 15H registration and examinations; correction orders; civil penalties; registration sanctions. The SEC already registers ISS; the § 15E examination office is the working model.
DOL fast lane i
Existing rule already provides the anchor: a plan fiduciary “may not adopt a practice of following the recommendations of a proxy advisory firm” without determining its guidelines are consistent with the fiduciary’s obligations — 29 C.F.R. § 2550.404a-1(d). The amendment conditions that reliance on the five disclosures. Regulates the buyer’s reliance decision, not the speaker — a materially lower compelled-speech risk than any direct mandate.
States preserved
Market-facing consumer-protection claims proceed now: the Texas DTPA petition, the Florida action, and the four-state suit (§ 5 above). Generally applicable state consumer-protection law is the clearest attorney-general enforcement path in the collected cases — it is not a client remedy: Texas’s DTPA excludes business consumers with $25 million or more in assets from its “consumer” definition (Tex. Bus. & Com. Code § 17.45(4)), placing institutional recipients outside § 17.50 damages, with attorney-general penalties at $10,000 per violation (§ 17.47(c), as amended 2019). That is why an express recipient claim is not optional in any design — it is what Transamerica and § 17.45(4) jointly require. And the lane has statutory footing, not merely an absence of preemption: Advisers Act § 203A(b)(1), 15 U.S.C. § 80b-3a, preempts specified state registration, licensing, and qualification requirements for covered persons — SEC-registered advisers among them — while § 203A(b)(2) preserves fraud-and-deceit investigation and enforcement by a state securities commission or an agency performing like functions.
The two state instruments — adviser-facing mandate and public-fund reliance condition — and the Texas vehicle are cataloged in Step 6.
DOJ Antitrust the conduct lane
Withdrawal of ISS’s 1987 business review letter, August 5, 2026, on the ground that the consulting expansion conflicts with the representations underlying the letter, and that the two firms control more than 90 percent of the market — DOJ release. Antitrust reaches conduct and market structure, not the content of any recommendation — the venue in this figure least directly exposed to Step 4’s compelled-speech problem. Federal and state theories run in parallel: the Florida action pleads antitrust alongside consumer protection, and the Division and the FTC filed a statement of interest in Texas v. BlackRock (E.D. Tex., May 22, 2025).
FTC backstop
FTC Act § 5 declares “unfair or deceptive acts or practices in or affecting commerce” unlawful — no fiduciary relationship needed; reaches unregistered firms.
The remedy — the lesson of Transamerica: a duty without an enforcer reproduces the gap
Congress must specify, not imply: (i) SEC enforcement plus a correction process; (ii) an express private action for the recipient of the advice — knowing or reckless violations, causation pleaded, reasonable-opinion and immaterial-error safe harbors, client-confidential policies protected. As reported, H.R. 8286 § 601 creates no express private right (only § 15H(h)’s separate issuer action does — and the bill’s proxy-advisory-firm definition excludes registered investment advisers, so as reported it would not reach ISS) — the design above supplies one. The claim is direct, by the person who received and relied on the advice — not derivative, on the corporation’s behalf. That is why it coexists without contradiction with TBOC § 21.552’s elected ownership ceiling on derivative standing: different plaintiff, different injury. i
The design problem is the one Step 2 solves federally, and it has the same answer at state scale. TSC supplies a standard, not a duty; under Macquarie, silence is actionable only where some rule required speech. A state statute that commands “disclose all material information” and stops gives a court nothing to enforce. The state instrument must enumerate the categories — the same five in Step 3 — and let the total-mix test cap them. Materiality is the limiting principle, not the source of the obligation.
(a) Adviser-facing disclosure mandates — the litigated class. Texas (S.B. 2337, ch. 6A), Kansas, Indiana, Kentucky: preliminarily enjoined three times as to ISS and Glass Lewis (Step 4), with Kentucky in litigation. The trigger was the pleaded defect — but the Kansas order’s compelled-speech passage (Step 4) means even a viewpoint-neutral mandate faces strict scrutiny, and the plaintiffs plead more than the First Amendment: the Glass Lewis Texas complaint adds vagueness, ERISA preemption, and dormant Commerce Clause counts, and ISS adds a Contracts Clause claim. A defensible state mandate must answer all five — viewpoint-neutral and particular (vagueness), governmental-plan-scoped (ERISA), confined to advice furnished to recipients in the state (dormant Commerce Clause; cf. National Pork Producers Council v. Ross, 598 U.S. 356 (2023)), and prospective, with existing subscriptions grandfathered — a risk-reduction choice, not a settled cure (Contracts Clause). Even then: “more defensible,” not “immune.”
(b) Public-fund reliance conditions — the unchallenged class, and Texas has already filed the vehicle. Tennessee’s purchaser-side contract architecture and Oklahoma’s pension-side statute (Step 5) had drawn no reported firm-facing challenge as of August 6, 2026. Texas has a predecessor vehicle: S.B. 312 (89th Leg., Hughes) — “relating to the fiduciary responsibility of the governing body of the public retirement systems in this state and the investment managers and proxy advisors acting on behalf of those systems” — which died pending in Senate State Affairs on April 24, 2025, and whose own substance carried the management-alignment triggers this design rejects; the successor borrows its chassis, not its triggers. A 90th-Legislature successor that conditions a system’s reliance on the Step 3 disclosures reaches every ballot those systems vote, wherever the issuer is incorporated, and compels no adviser’s speech: the state is deciding what it will buy.
The contrast is the finding — stated exactly. Every adviser-facing mandate now in effect has drawn a challenge; no public-fund reliance condition had, as of August 6, 2026. Oklahoma’s adviser-facing law takes effect November 1, 2026 and will test whether the pattern tracks instrument design or merely effective dates. Either way, the reliance instrument is the lane without a docket — and that is the strongest available guide for the 90th Legislature.
Sources. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976); Basic Inc. v. Levinson, 485 U.S. 224, 232 (1988); SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 191–94 (1963); Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 19–24 (1979); Macquarie Infrastructure Corp. v. Moab Partners, L.P., 601 U.S. 257, 263–65 (2024); Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 651 (1985); Institutional Shareholder Services, Inc. v. SEC, No. 24-5105, slip op. at 16–17 (D.C. Cir. July 1, 2025); 17 C.F.R. § 275.206(4)-6; 29 C.F.R. § 2550.404a-1(d); 15 U.S.C. § 78o-7 (Exchange Act § 15E); 15 U.S.C. § 45(a)(1) (FTC Act § 5); H.R. 8286, 119th Cong. (reported June 24, 2026); SEC IAPD, CRD 111940; Glass Lewis, Statement of Record (Nov. 2018); Society for Corporate Governance, letter to the SEC (2018), at 10; SEC, Study on Investment Advisers and Broker-Dealers 17 (2011); ISS v. Kobach, Mem. & Order (D. Kan. June 24, 2026) (verified repository copy); Chiles v. Salazar, No. 24-539 (U.S. Mar. 31, 2026); Glass Lewis, A Personal Commitment to Change Proxy Voting Practices (Nov. 25, 2025). The ISS letter of June 19, 2026 is on file with SMU CGI (see § 5.3). Added Aug. 6, 2026: DOJ, Justice Department Withdraws Business Review Letter Issued to Proxy Advisory Firm (Aug. 5, 2026); ExxonMobil DEFA14A (May 15, 2026), acc. 0001193125-26-226496; Tenn. Pub. Ch. 986 (2026) (bill record — official page bot-blocked to automated verification Aug. 6, 2026; content corroborated by two independent reviewers; queued for browser re-verification, with the Florida AG release — bot-blocked Aug. 6; counts corroborated via Bloomberg Law); Tex. S.B. 312, 89th Leg. (2025) (left pending in committee Apr. 24, 2025); Tex. Gov’t Code § 802.002(a); National Pork Producers Council v. Ross, 598 U.S. 356 (2023).
DESIGN PROPOSAL · PREPARED BY SMU CGI, AUGUST 5, 2026 · AUTHORITIES FETCH-VERIFIED AND REGISTERED IN THE MASTER VERIFICATION LEDGER (v2.0); WHERE AN OFFICIAL PUBLIC URL IS UNAVAILABLE, A VERIFIED REPOSITORY COPY IS IDENTIFIED AND LABELED · ELEMENTS MARKED PROPOSED ARE LEGISLATIVE DESIGN CHOICES, NOT CURRENT LAW