KANSAS CITY (LN) — Institutional Shareholder Services filed suit Wednesday against Kansas Attorney General Kris Kobach, asking a federal judge to block a newly enacted state law that ISS alleges would unconstitutionally burden the firm for recommending that institutional investors vote against corporate management, with fines of up to $10,000 per violation.
The filing, a motion for preliminary injunction before U.S. District Judge Holly L. Teeter, targets Senate Bill 375, which takes effect July 1, 2026. ISS argues the law is unconstitutional on at least three independent grounds: viewpoint discrimination, compelled speech, and impermissible extraterritorial regulation of commerce that occurs entirely outside Kansas.
The statute's mechanics are straightforward, ISS contends, and straightforwardly one-sided. Whenever a proxy advisor recommends a vote against company management, S.B. 375 requires the advisor to either produce a detailed written financial analysis — one that analyzes expected short- and long-term financial benefits and costs, concludes which vote is most likely to positively affect shareholder value, and explains the methods and personnel behind the analysis — or affix a series of disclosures to its advice. Those disclosures must go to the client, to the board of directors of the company being analyzed, and, in perpetuity, to the general public on the front page of the advisor's website. A proxy advisor that agrees with management faces no obligations at all.
The bill's own sponsor, according to the filing, acknowledged the asymmetry. During a February 2026 committee hearing, the sponsor said the legislation addresses situations where proxy advisors often recommend votes against what the management of the company has recommended, and that that is what the bill addresses. A member of the sponsoring committee went further, conceding on the record that the bill is not viewpoint neutral.
ISS contends that the compelled-disclosure alternative is not a neutral escape hatch but a trap. The firm's research reports, it says, routinely run dozens of pages and include financial tables, valuation analyses, and executive compensation metrics. Requiring ISS to publicly declare that its recommendations were made without a written financial analysis of the impact on company investors would be, in ISS's framing, a false and misleading statement — one the government would be forcing it to broadcast to the very corporate boards whose proposals ISS is evaluating, potentially exposing confidential client strategies.
The vagueness claim adds a separate layer. ISS argues that S.B. 375 leaves fundamental questions unanswered: What counts as a recommendation against management when management takes no position? Does an abstention trigger the law? What time horizons define short-term and long-term? How prominent must the website disclosure be? The firm warns that those ambiguities, combined with fines that accrue per violation, create a chilling effect designed to push proxy advisors toward endorsing management regardless of client preferences.
The extraterritoriality argument may be the most structurally sweeping. ISS is incorporated in Delaware and headquartered in Maryland, with no offices in Kansas. It serves approximately 1,400 clients across roughly 100 markets worldwide and currently has just one Kansas-based client. Yet S.B. 375, as written, would govern any recommendation ISS makes to any client anywhere whenever a company subject to the advice is publicly traded. ISS argues that Kansas cannot constitutionally regulate transactions that occur wholly outside its borders, invoking the dormant Commerce Clause, the Due Process Clause, and what it calls the Constitution's horizontal separation of powers.
The model legislation underlying S.B. 375 was drafted by a group calling itself Consumers Defense, whose stated aim, according to materials cited, is to combat what it describes as "the scourge of ESG in all its forms, in every state, and in every arena where it infects." The Kansas Legislature enacted the bill over Governor Kelly's veto.
ISS is not the first proxy advisor to face a state-level challenge of this kind. A federal court in Texas held a hearing last August in a parallel suit, ISS v. Paxton, where a judge observed that it is not fraud for ISS to be providing these customers the information that they have sought.