Musk Slams Proxy Advisors as ‘Corporate Terrorists’ Amid Growing Influence Over Corporate Elections

Executive Outburst Highlights Proxy Power Struggle

Elon Musk’s fiery criticism of proxy advisory firms this week has thrown a spotlight on what analysts suggest is a fundamental shift in corporate governance dynamics. The Tesla CEO reportedly labeled Institutional Shareholder Services and Glass Lewis “corporate terrorists” during an earnings call, claiming they “have no freaking clue” after ISS recommended against his nearly $1 trillion compensation package. According to reports, Musk argued that past recommendations from these firms “would have been extremely destructive to the future” of Tesla.

Executive Outburst Highlights Proxy Power Struggle
The Rising Influence of Proxy Advisors
Governance Without Obligation?
The Compensation Controversy
Passive Investors and Voting Dynamics
The Broader Governance Debate

The Rising Influence of Proxy Advisors

Sources indicate that proxy advisory firms have become increasingly powerful in recent years as more individual investors participate in stock markets through passive funds. With nearly two-thirds of Americans now invested in equities, there’s reportedly growing demand for professional guidance on shareholder votes. Professor Paul Rose of Case Western Reserve University Law School, who focuses on corporate governance, stated that ISS and Glass Lewis together control more than 90% of the proxy advisory market.

Analysts suggest these firms have become what Professor Rose describes as “de facto gatekeepers of corporate governance.” During Congressional hearings earlier this year, Rose reportedly revealed that more than 100 institutional investors voted in almost total alignment with ISS or Glass Lewis recommendations in 2020. The report states that many large shareholders use “robo-voting,” automatically following proxy advisors’ advice without conducting independent analysis.

Governance Without Obligation?

Despite their influence, Professor Rose noted that proxy firms “operate without fiduciary obligations, limited transparency and minimal accountability.” This regulatory gap has drawn scrutiny from both corporate executives and lawmakers. According to reports, House Republicans held hearings in 2023 examining the companies’ roles in influencing votes around environmental, social and governance investing.

Columbia University Professor Eric Talley reportedly stated that many CEOs argue the firms provide “cookie cutter” and “generic” advice. However, proponents maintain that without this resource, investors would either be left to their own devices or would rely solely on company-provided information.

The Compensation Controversy

At the heart of Musk’s criticism is ISS’s recommendation against Tesla’s proposed compensation package for the CEO, which could reportedly make him the first trillionaire. The advisory firm highlighted “unmitigated concerns” about the proposal, set for a shareholder vote next month. A coalition including the American Federation of Teachers and consumer advocate Public Citizen has launched a “Take Back Tesla” campaign, calling the pay package “outrageous.”, according to technological advances

According to Colorado Law professor Ann Lipton, executive compensation represents one of the more common decisions that come before shareholders. She suggested that corporate managers “really have decided they don’t like proxy advisors,” particularly when their analysis doesn’t support management proposals.

Passive Investors and Voting Dynamics

Musk reportedly warned that if index funds maintain large ownership stakes and too many passive investors defer to proxy advisor recommendations, companies could be “de facto” run by ISS and Glass Lewis. He described this as “a fundamental problem for corporate governance,” claiming the firms “are not voting along the lines that are actually good for shareholders.”

Professor Lipton noted that because passive investors typically hold stocks simply because they’re in an index, voting represents one of their few avenues to influence corporate direction. BlackRock CEO Larry Fink has acknowledged this dynamic, with the asset manager developing a “voting choice” program aimed at making shareholder voting more accessible to fund investors.

The Broader Governance Debate

Analysts suggest Musk’s comments reflect a broader tension between corporate management and independent shareholder analysis. Professor Lipton stated that “corporate management is really just objecting to the fact that shareholders have a voice,” adding that executives “would prefer shareholders be seen and not heard.”

Despite ongoing criticism from corporate leaders, Professor Talley doesn’t expect proxy advisors to lose their influence soon, particularly as more retail investors enter markets without time to analyze proposals themselves. “The fact of the matter is, stockholder votes continue to matter a lot,” Talley reportedly said, noting that proxy advisory reports provide “information that is going to be at least of some use to outside investors.”