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Rockville, Maryland-based investor advisory firm Institutional Shareholder Services Inc. has filed a lawsuit challenging a new Indiana law that ISS says violates its First Amendment right to freedom of speech.
ISS filed its legal complaint against Indiana Attorney General Todd Rokita on Monday in U.S. District Court for the Southern District of Indiana.
ISS is what’s known as a proxy adviser — a company that provides information and advice to institutional investors to help them decide how to vote on board elections, board or management proposals and shareholder proposals. Institutional investors include entities such as pension plans, asset managers and mutual funds, which typically hold stock in many companies and therefore make decisions on many shareholder issues each year.
In its complaint, ISS says that in 2025 it helped about 2,000 clients make proxy voting decisions for about 52,000 shareholder meetings in 100 markets. Of those clients, six are based in Indiana. (The complaint does not identify those Indiana clients.)
The ISS complaint centers on legislation that originated as House Bill 1273, which the Indiana Legislature passed earlier this year and is set to go into effect July 1. In its lawsuit, ISS is asking the court to prohibit Rokita’s office from taking action against the company to enforce the new law.
ISS is framing the law as part of a larger multistate effort to go after proxy advisers such as itself.
“Indiana’s H.B. 1273, which closely tracks a model state bill introduced in approximately 12 U.S. states, is the latest in unconstitutional attempts to target proxy advisors for the advice they provide to their subscribing institutional investor clients,” ISS said in a statement that it shared with IBJ and posted on its website Tuesday. “These attempts threaten to distort the free market of information that sophisticated investors rely on when managing their investment portfolios all over the world. As sophisticated institutions, U.S. and global institutional investors do not need government overreach to protect them from receiving the very services they hired ISS to perform.”
In its lawsuit, ISS notes that this is not the first time Rokita has acted against proxy advisers.
The lawsuit includes a link to a 2023 letter that Rokita, and 21 other attorneys general, sent to ISS and another proxy advisory firm, California-based Glass, Lewis & Co. The letter said that the proxy advisers had potentially breached their legal obligations by advocating for things like climate, diversity, equity and inclusion policies.
Among other of Rokita’s actions, the ISS lawsuit also cites an advisory opinion that Rokita issued in 2022 declaring that Indiana state law prohibits state pension fund managers and advisers from considering environmental, social and governance factors, commonly referred to collectively as ESG factors, when evaluating proxy votes.
“H.B. 1273 enables Attorney General Rokita to continue this yearslong campaign,” ISS alleges in its complaint.
A spokesperson for Rokita’s office did not respond to a phone message and email messages seeking comment for this story.
H.B. 1273’s author, Rep. Kyle Pierce, a Republican from Anderson, did not respond to a phone message left at his legislative office seeking information about his intent in creating the law. (Anderson is not a defendant in the ISS lawsuit.)
H.B. 1273 focuses on instances in which a proxy adviser recommends that a client vote against a proposal backed by the company’s management.
If this recommendation is based on a written financial analysis—defined in the law as an analysis of the financial impact of a proposal and on which vote on the proposal is most likely to have a positive financial impact on shareholders—H.B. 1237 requires the proxy adviser to disclose this fact to its clients, provide a copy of the analysis to company management and share it with the proxy adviser’s clients upon request.
If a proxy adviser’s recommendation is not based on a written financial analysis, the law says, the proxy adviser must disclose this fact to its clients, notify company management and post a prominent notice on its own website stating that it made a recommendation on a proposal without doing a financial analysis of the recommendation’s financial impact on shareholders.
In its complaint, ISS argues that H.B. 1273 violates the First Amendment, describing the law as “state-imposed viewpoint discrimination that burdens anti-management — and only anti-management — speech. The law’s goal is to force ISS to walk the line that corporate executives want — even if ISS and its clients believe that course of action is wrong for shareholders.”
The lawsuit also alleges that H.B. 1273 would apply to any anti-management recommendation that ISS makes to any of its clients about any company in any location. This, ISS alleges, violates the Constitution’s dormant Commerce Clause.
“The State of Indiana may not dictate how other states and countries regulate business in their own jurisdictions,” ISS says in its complaint.
ISS also says that the law’s financial analysis requirement “ignores that many issues that generally come up for a shareholder vote do not lend themselves to financial prediction — like whether to vote for or against reelecting a particular board member who has missed too many meetings in the past, or whether to vote for or against a nonbinding request that a company prepare an additional report analyzing its supply chain vulnerability to climate change.”
In its complaint, ISS also says it has no financial interest in the outcome of any shareholder vote. Rather, ISS says, it tailors its advice to each client’s priorities and goals. As an example, ISS said it might advise clients who prioritize faith-based or sustainability-based voting criteria to vote against a certain proposal, but it might advise other clients who don’t prioritize these things to vote for the same proposal.
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