Why Wells Fargo Ditched Big Proxy Advisers for In-House Decisions

America's fourth-largest bank just made a quiet but significant move that could reshape how corporate governance decisions are made. Wells Fargo has built its own proxy voting system, reducing its dependence on the two giants that have long dominated this space: Institutional Shareholder Services (ISS) and Glass Lewis.

The decision might seem technical, but it strikes at the heart of who really controls corporate America.

The Hidden Power Behind Boardroom Battles

Most investors have never heard of proxy advisers, yet these firms wield enormous influence over corporate decisions. When shareholders vote on executive compensation, board appointments, or major acquisitions, institutional investors managing trillions of dollars often follow the recommendations of ISS and Glass Lewis.

These two companies control 97% of the global proxy advisory market, making them kingmakers in corporate governance. Their thumbs-up or thumbs-down can determine whether a CEO keeps their job or a merger goes through. But this concentrated power has increasingly drawn criticism for being too rigid and one-size-fits-all.

Wells Fargo's move represents a direct challenge to this duopoly. By developing its own analytical capabilities, the bank is essentially saying: "We can make better decisions ourselves."

The Cost of Independence

Building an in-house proxy voting system isn't cheap or simple. Wells Fargo now needs teams of analysts to research thousands of companies, understand complex business situations, and make nuanced judgments about governance issues. The bank must also take full responsibility for its voting decisions, without the cover that comes from following established advisory firms.

But the potential benefits are significant. Custom analysis allows for more sophisticated decision-making that considers industry-specific factors, company history, and market conditions that standardized recommendations might miss. For a bank with $1.9 trillion in assets under management, even small improvements in investment decisions can translate to substantial value.

A Crack in the Advisory Armor?

Wells Fargo's decision comes amid growing criticism of proxy advisers from various quarters. Corporate executives complain that these firms apply mechanical checklists without understanding business realities. Some investors worry about conflicts of interest, since the same firms that advise on voting also sell consulting services to the companies being evaluated.

Regulators have also taken notice. The SEC has proposed rules requiring more transparency from proxy advisers, while some Republican lawmakers have called for stricter oversight of their influence.

The question now is whether other major institutional investors will follow Wells Fargo's lead. Asset managers like BlackRock and Vanguard, which together control over $20 trillion in assets, have the resources to build similar systems. Their decisions could either validate Wells Fargo's approach or leave it as an outlier.