Institutional Shareholder Services Inc. v. Kobach

The federal district court for the District of Kansas granted motions by the proxy advisors Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. (Glass, Lewis) for a preliminary injunction enjoining the Kansas Attorney General from enforcing the Proxy Advisory Transparency Act (SB 375). SB 375 imposes certain disclosure requirements on proxy advisors when they recommend a vote “against company management.” The disclosure requirements differ depending on whether the recommendation is based on a “written financial analysis.” No disclosure is required if a proxy advisor recommends a vote in favor of company management. The court’s decision described ISS’s and Glass, Lewis’s processes for providing voter recommendations, noting, among other things, that recommendations are tailored based on the proxy voting policies selected by their clients. Those policies include, for ISS, specialty policies that are thematic and may be focused on areas such as sustainability, social responsibility, or the climate. Glass, Lewis also offers thematic policies, including one focused on mitigating climate change. The court found that SB 375 regulated speech based on viewpoint and that strict scrutiny therefore applied. The Attorney General did not argue that the law would withstand strict scrutiny. The court therefore found that the proxy advisory firms were likely to succeed on the merits of their First Amendment claims. The court further rejected the argument that the “against-company-management language” could be severed so that SB 375 would apply to all proxy advisory recommendations. The court cited “many problems” with this argument, including that SB 375 would still compel speech and therefore still be subject to strict scrutiny. The court rejected the argument that the regulated speech was “commercial speech” that would require a less stringent standard of review. The court further found that the plaintiffs would suffer irreparable harm in the absence of an injunction, that the balance of the equities weighed in favor of an injunction, and that an injunction was in the public interest.