Now is the Time to Designate Proxy Advisors as Fiduciaries Under ERISA

39 Pages Posted: 7 Sep 2019 Last revised: 20 Mar 2020

Date Written: March 18, 2020


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 an investment advice fiduciary under ERISA would require proxy advisors, like plan managers, to be constantly guided by fiduciary principles in the creation of their voting recommendations for ERISA plans. These fiduciary principles include making decisions solely in the interest of the participants and beneficiaries of the plans with the exclusive purpose of providing benefits to them, and the application of the prudent man standard to proxy advisor actions. The investment advice fiduciary designation would also require proxy advisors to consider, without exception, SWM as the 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.

Keywords: ERISA, fiduciary duties, proxy advisors, investment advice fudicary, shareholder voting, corporate governance, investment managers, investment advisers

JEL Classification: K2, K22,H72, H75, J26, J32

Suggested Citation

Sharfman, Bernard S., Now is the Time to Designate Proxy Advisors as Fiduciaries Under ERISA (March 18, 2020). 25 Stanford Journal of Law, Business, and Finance 1. Available at SSRN: or

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