For decades, institutional investors have managed proxy voting through a straightforward process: retain a proxy advisory firm, adopt its policy guidelines, and vote accordingly. This approach was efficient, defensible, and broadly accepted. It is no longer any of those things.
The legal, regulatory, and political landscape governing institutional proxy voting has shifted dramatically over the past 18 months. What was once a routine compliance function has become a material source of fiduciary liability — particularly for managers of pension assets, ERISA funds, and portfolios subject to state fiduciary standards.
This post explains what has changed, what the exposure looks like, and what institutional managers need to do to bring their proxy voting programs into compliance with the new environment.
What Has Changed: The Regulatory and Legal Landscape
Three developments have fundamentally changed the proxy voting environment for institutional fiduciaries.
State legislative action. Texas enacted Senate Bill 833 in 2023, prohibiting state pension funds and their investment managers from considering factors other than financial risk and return in investment decisions — including proxy voting. Florida enacted similar legislation. Several other states have followed or are in the process of doing so. These statutes create direct legal exposure for managers who vote proxies on behalf of state pension assets in ways that prioritize non-financial considerations.
The December 2025 Executive Order. A December 2025 Executive Order addressing the responsibilities of ERISA fiduciaries and managers of federal pension assets reoriented the expected framework for proxy voting. The Order emphasizes that proxy voting decisions must be made exclusively in the financial interest of plan participants and beneficiaries, and that delegation of those decisions to third-party advisors does not relieve the fiduciary of responsibility for the outcomes.
Active litigation. The landscape of proxy-related litigation has expanded significantly. The key point for institutional managers is not the specific outcome of any particular case, but what the active litigation environment signals: proxy voting is no longer a low-scrutiny compliance function. It is a domain in which fiduciaries can and will be held accountable for their processes and their votes.
The Core Legal Problem with Delegation
The fundamental fiduciary problem with delegating proxy voting to a third-party advisor is not that the advisor exists or that its recommendations are used. The problem is uncritical delegation — adopting an advisor's recommendations wholesale, without independent review, as a matter of administrative efficiency rather than fiduciary judgment.
Under ERISA and similar state fiduciary standards, a fiduciary who delegates a decision does not thereby escape responsibility for the outcome. The fiduciary retains the obligation to select the delegate prudently, to monitor the delegate's performance, and — critically — to ensure that the delegate's recommendations are being applied in a manner consistent with the plan's interests.
An institutional manager who simply applies a third-party advisor's voting guidelines across its entire portfolio — without reviewing individual recommendations for consistency with its fiduciary obligations — has not delegated a fiduciary decision. It has abdicated one. And in the current environment, that distinction is becoming increasingly significant.
The specific risk is this: if a manager votes in accordance with a third-party advisor's guidelines on a proposal that a regulator or litigant subsequently challenges as inconsistent with the plan's financial interests, the manager cannot defend itself by pointing to the advisor's recommendation. The obligation to vote in the financial interest of the plan's participants was the manager's obligation, not the advisor's. The recommendation was a resource, not a defense.
What Defensible Proxy Voting Looks Like Today
Defensible proxy voting in the current environment has four characteristics.
An explicit, documented policy that states the manager's proxy voting objectives, the factors it considers, and the process by which individual voting decisions are made. This policy must be consistent with the manager's fiduciary obligations under applicable law — which means it must be grounded in the financial interests of the plan's participants, not in any other objective.
Independent review of material proposals. Not every proxy vote requires individualized analysis — a routine director election at a company with no governance concerns does not demand the same scrutiny as a contested merger or a proposal that implicates environmental liabilities. But a defensible proxy voting program must include a mechanism for identifying proposals that warrant independent review, and actually conducting that review, rather than defaulting to a third-party advisor's recommendation.
Documented rationale for votes on material proposals. The ability to demonstrate, after the fact, why a particular vote was cast — with reference to the plan's financial interests — is the difference between a defensible program and a vulnerable one. Documentation does not need to be elaborate. It needs to exist and to be contemporaneous.
Ongoing monitoring of delegation arrangements. If a manager uses a third-party advisor as part of its proxy voting process, it must actively monitor the advisor's recommendations for consistency with the plan's interests. This is not a one-time due diligence exercise. It is an ongoing fiduciary obligation.
CRAGSI's Role
CRAGSI provides independent, fiduciary-grade proxy voting advisory to institutional managers — including managers of ERISA plan assets — who need to upgrade their proxy voting programs to meet the current regulatory environment.
Our team has voted proxies, including on ERISA plan assets, in 28 of the past 29 years. We bring practitioner-level expertise in the specific fiduciary standards that apply to pension asset management, the substantive governance and financial questions that arise in proxy voting contexts, and the documentation and process requirements of a defensible voting program.
We do not replace a manager's existing process wholesale. We help managers identify the gaps between their current process and a defensible one, and we provide the independent analytical capacity to fill those gaps — whether through full-service proxy voting administration, targeted review of contested or complex proposals, or policy development and documentation.
If your organization's proxy voting program was built around a model of wholesale third-party delegation, now is the time to review it. The environment has changed materially, and the cost of inaction — measured in regulatory exposure and litigation risk — is no longer theoretical.
CRAGSI offers a free, confidential consultation for institutional managers evaluating their proxy voting programs. We will tell you honestly what we see, what the exposure looks like, and what it would take to address it.