JP Morgan fires human proxy firms to let "Proxy IQ" decide shareholder votes

Wall Street’s most entrenched duopoly just lost its biggest customer to an AI. By officially cutting ties with Institutional Shareholder Services (ISS) and Glass Lewis, two firms that control a staggering 97% of the proxy advisory market, JP Morgan Asset Management is betting its $3 trillion portfolio on a proprietary algorithm named "Proxy IQ." This isn't just a software update; it is a unilateral declaration of independence that fundamentally alters the mechanics of modern corporate governance.

For decades, the rhythm of Wall Street was dictated by a simple, manual workflow: companies released massive PDF proxy statements, human analysts at ISS and Glass Lewis read them, and then they sold "buy," "sell," or "hold" recommendations to asset managers. JP Morgan has decided that this analog loop is too slow, too expensive, and politically radioactive.

The Death of the Middleman

The decision to deploy an internal, AI-driven voting infrastructure marks a critical pivot in how the world's largest banks wield power. Until now, major asset managers have largely rubber-stamped the recommendations provided by the advisory firms. Research indicates the correlation between advisory recommendations and actual votes has historically been nearly absolute.

However, JP Morgan’s transition to "Proxy IQ" effectively fires the external human analysts. In a client memo, the bank explicitly stated: "By harnessing advanced AI, we no longer need third-party data collection or voting recommendations in the U.S."

This shift is powered by the bank's "Spectrum" investment platform. While the bank frames this as an investment in "proprietary models," the subtext is clear: machines can digest balance sheets and governance histories faster than an army of analysts.

The Economics of Automation

The financial incentive for JP Morgan is obvious. The bank spends millions annually on research fees. By bringing the function in-house, they eliminate a recurring cost. But the operational efficiency gained by AI integration is the real driver.

With thousands of portfolio companies holding annual general meetings (AGMs) within a condensed "proxy season," the volume of data is crushing. "Proxy IQ" is built to aggregate and analyze data from over 3,000 annual meetings, flagging anomalies that a weary human analyst might miss.

This moves the bank toward what fintech analysts call "computational governance." Instead of relying on a narrative report from Glass Lewis explaining why a director should be ousted, JP Morgan’s internal dashboard simply surfaces the data point that violates their risk parameters. The decision becomes binary, swift, and arguably, more objective.

The Political Firewall

While the efficiency gains are significant, the "why now" of this story is inextricably linked to the culture wars currently ravaging the financial sector. ISS and Glass Lewis have become lightning rods for criticism from both the left and the right. Republican state officials and President Donald Trump have targeted the firms for allegedly prioritizing "woke" ESG goals over returns.

By outsourcing their voting decisions, banks like JP Morgan were essentially outsourcing their political liability. But as the heat on "ESG" turned up, that liability became too toxic. If an algorithm makes the call based on purely financial metrics, it provides a distinct layer of legal and PR armor.

"We are now using our own proprietary data and insights," the bank stated, effectively telling regulators and activists alike that their votes are now the result of rigorous, internal math, not the ideological whims of a third-party consultancy. It allows JP Morgan to tell a relentless questioning Congress: "The model made us do it."

The Domino Effect

The danger for ISS and Glass Lewis is not just the loss of JP Morgan’s contract revenue; it is the signaling effect. JP Morgan is a trendsetter. If the bank proves that it can successfully manage proxy voting with internal tech at a lower cost, BlackRock and Vanguard may be forced to look at their own reliance on the duopoly.

Currently, BlackRock uses a hybrid approach, but they possess the capital and the engineering talent to replicate what JP Morgan has done. If the "Big Three" asset managers all withdraw from the advisory market, the business model of the proxy advisors collapses.

The Liability of Code

However, moving this "in-house" brings a new kind of risk. When you fire the advisor, you own the mistake. If "Proxy IQ" misses a massive governance failure at a portfolio company, say, overlooking a toxic poison pill provision or a fraudulent audit committee member, they have no one else to blame.

The fiduciary duty now rests entirely on the code and the internal teams managing it. There is also the "black box" problem. Regulators at the SEC have spent years trying to understand the methodologies of ISS and Glass Lewis. They will now have to turn their scrutiny toward the opaque, proprietary algorithms of the banks themselves.

Ultimately, this is a story about the commoditization of judgment. For a century, shareholder voting was viewed as a high-touch, human art form requiring deep context. JP Morgan has looked at the data and decided that, like trading and risk assessment before it, governance is just another math problem waiting to be solved.