Every year, the shareholders of publicly listed companies around the world vote on matters including executive compensation, board composition, mergers and acquisitions, and shareholder resolutions. In theory, this is corporate democracy in action: owners of the business exercising their rights over the people who manage it. In practice, most institutional investors — the pension funds, mutual funds, and asset managers that own the majority of public company shares — do not form independent views on these questions. They outsource the analysis and recommendation to one of two firms: Institutional Shareholder Services or Glass Lewis.
ISS and Glass Lewis together advise on roughly three-quarters of the global institutional proxy vote. Their recommendations carry sufficient weight that a negative ISS recommendation on an executive pay package can, by itself, swing a vote that the company's management expected to win comfortably. The companies know this. The result is a curious power dynamic in which major corporations negotiate their compensation structures and board compositions with an eye toward what two private firms — neither of which is accountable to shareholders or regulators in any meaningful sense — will find acceptable.
How the Proxy Advisory Duopoly Was Built
The proxy advisory industry emerged in the 1980s as institutional ownership of public companies grew. An individual investor who owns a hundred shares of a company and receives a proxy ballot has little incentive to read it carefully. An institutional investor that owns 0.5 percent of a company and has that company among thousands in its portfolio has a fiduciary obligation to vote those shares thoughtfully — but doing so independently across the entirety of a large portfolio would require staffing that most institutions are unwilling to fund.
ISS and Glass Lewis solved this problem by offering subscription services that provide standardised voting recommendations across all the companies in an institutional portfolio. The subscriber pays an annual fee and receives a recommendation on every ballot item for every company it holds. The economics are attractive: the cost of the subscription is far lower than the cost of building an internal proxy team capable of doing the same analysis. The result is that most institutional investors, including the largest asset managers in the world, follow ISS or Glass Lewis recommendations on the majority of ballot items they vote on.
The concentration of influence in two private firms has attracted sustained criticism. The firms are paid by the companies they evaluate through consulting relationships that run alongside their advisory business, creating potential conflicts of interest. Their methodologies are proprietary and not subject to independent review. Their recommendations are applied mechanically by subscribers who lack the time to evaluate them case by case. When a major institutional investor votes against an executive pay package because ISS recommended it, neither the investor nor the company has necessarily engaged seriously with the underlying question of whether the pay was appropriate.
What On-Chain Voting Could Change
Tokenized equity creates the technical infrastructure for shareholder voting to be conducted on-chain. If a company's shares are represented as tokens on a blockchain, the token holder register is the shareholder register, and votes can be cast through cryptographically signed transactions rather than through the paper-and-broker intermediary chain that currently characterises proxy voting. The blockchain provides a verifiable audit trail: every vote is recorded, timestamped, and attributable to a specific token holder address.
The operational improvement over current proxy mechanics is significant. The existing proxy voting system requires votes to be transmitted through a chain of intermediaries — the investor's custodian, the custodian's sub-custodian, the proxy voting agent — before reaching the company's tabulator. At each step, there is potential for errors, delays, and miscounted votes. Studies have documented cases where institutional investors' votes were not counted because of operational failures in this chain. On-chain voting eliminates most of these intermediaries and gives both the voter and the company direct visibility into the ballot.
The more interesting question is not operational efficiency but governance philosophy. If every token holder can vote directly on every proposal, the case for delegating that vote to a proxy advisory firm becomes weaker. The friction cost of voting — which is the primary reason institutions outsource to ISS and Glass Lewis — drops to near zero when voting is a button press in a digital wallet. What remains is the question of whether the voter wants to form an independent view or still prefers to follow a recommendation.
The Retail Holder Problem
One of the distinctive features of on-chain governance, demonstrated extensively in the DeFi ecosystem, is that it enables retail token holders to participate directly in governance decisions that, in traditional corporate structures, would be effectively controlled by institutional holders. Compound, Uniswap, and Aave all use on-chain governance systems in which token holders vote directly on protocol parameters, treasury allocation, and strategic decisions. Participation rates are low — typically below 10 percent of eligible tokens — but the mechanism is genuinely accessible in a way that paper proxy voting is not.
The lessons from DeFi governance are instructive and not entirely encouraging. Low participation creates its own concentration problem: when most token holders do not vote, the votes that are cast carry disproportionate weight, and large holders can effectively control outcomes despite technically owning a minority of tokens. Delegation mechanisms — where small holders delegate their voting power to trusted parties who do vote — have emerged as a response, but they recreate the proxy advisory dynamic in a different form. The difference is that on-chain delegation is transparent and revocable in real time, whereas traditional proxy delegation is opaque and sticky.
The Incumbent Position
ISS and Glass Lewis are not unaware of the threat that tokenized equity and on-chain governance pose to their business model. Both firms have invested in digital asset capabilities and positioned themselves as potential governance advisory firms for tokenized equity structures. The argument is that even if voting becomes frictionless, institutional investors will still benefit from informed analysis of ballot items — and that the analytical expertise ISS and Glass Lewis have built is valuable independent of the operational mechanics of how votes are cast.
This argument is more defensible than it might initially appear. The problem with shareholder democracy is not primarily that voting is operationally difficult; it is that most institutional investors do not have the analytical capacity to form independent views on hundreds of complex governance questions across thousands of portfolio companies. Solving the operational problem with blockchain does not solve the analytical problem. A well-designed proxy advisory firm that provides transparent, conflict-free analysis remains valuable in a world of on-chain voting.
What tokenization could realistically change is the structure of the market. A duopoly maintained by high switching costs and the convenience of a one-stop recommendation service becomes more vulnerable when the friction of using multiple advisory services drops. If on-chain voting platforms embed advisory recommendations from multiple providers, and if institutional investors can easily compare and mix recommendations, the competitive moat of ISS and Glass Lewis erodes. The outcome is more competition in proxy advisory services, more diverse recommendations, and ultimately more genuine engagement by investors with the governance questions they are voting on. That would be a substantial improvement over the current situation, even if it falls short of the fully participatory shareholder democracy that blockchain advocates describe.