Aaron Boles is the president of the shareholder and governance advisory firm Kingsdale Advisors.<\/p>\n
Corporate governance is entering a new era that will test the principles that underpin shareholder democracy.<\/p>\n
JPMorgan Chase\u2019s JPM-N<\/a> asset management unit, which oversees more than US$7-trillion in client assets, has made a consequential move. It\u2019s severed ties with proxy advisory firms<\/a> and will entrust shareholder voting recommendations to a proprietary AI<\/a> platform, Proxy IQ. <\/p>\n This isn\u2019t a routine operational change. It\u2019s the latest salvo in a proxy power shift. <\/p>\n For decades, proxy advisers such as Institutional Shareholder Services and Glass Lewis & Co. \u2013 whose research and voting recommendations are used by institutional investors \u2013 have helped shape decisions on voting outcomes at public companies.<\/p>\n Proxy adviser Glass Lewis to end benchmark voting recommendations<\/a><\/p>\n Critics have long argued that these firms wield disproportionate influence, with limited visibility into methodologies and potential conflicts of interest across their business lines. <\/p>\n Influential policy makers in the United States agree. A recent White House executive order<\/a> directs federal regulators to reassess the proxy adviser industry\u2019s role in shaping corporate governance and to consider heightened transparency and fiduciary standards.<\/p>\n Given that JPMorgan chairman and CEO, Jamie Dimon, has consistently criticized proxy advisers over the years, one might reasonably ask why it took so long to make this move, and whether there is a cost advantage. <\/p>\n Regardless, when AI begins to influence the votes that shape the future of companies and trillions of dollars in assets under management, difficult questions follow. <\/p>\n Who is accountable when an AI-driven vote produces unintended consequences from hallucinations? <\/p>\n Just 2% of Canadian businesses got return on generative AI investments, survey shows<\/a><\/p>\n How do beneficial owners (the pensioners and everyday investors whose shares are being voted) know whether these systems are free from bias, resilient to cyber-risk, transparent in their logic and reliable in their conclusions?<\/p>\n Market pressure will likely force greater disclosure around how AI\u2011driven proxy voting systems are trained. Until then, the likely outcome is reduced transparency and further fragmentation in proxy voting outcomes. <\/p>\n For issuers, life will become harder, not easier.<\/p>\n While JPMorgan\u2019s AI move is only for U.S. proxy voting process, the implications are equally urgent for Canada.<\/p>\n Canadian securities regulators have made clear<\/a> that existing fiduciary obligations apply if and when asset managers use AI systems.<\/p>\n Proxy voting shapes decisions on mergers and acquisitions, sustainability commitments, board composition, and executive compensation. These are issues that define capital markets activity, corporate purpose and societal impact.<\/p>\n