Shareholder Monitoring and Voting
Paper Session
Friday, Jan. 7, 2022 3:45 PM - 5:45 PM (EST)
- Chair: Todd Gormley, Washington University in St. Louis
The Proxy Advisory Industry: Influencing and Being Influenced
Abstract
Mutual funds rely on recommendations from proxy advisors when voting in corporate elections. Proxy advisors’ influence has been a source of controversy, but it is difficult to study because information linking funds to their advisors is not publicly available. A key innovation of this paper is to show how fund-advisor links can be inferred from previously unnoticed features of a fund’s SEC filings. Using this method to infer links, I establish several novel facts about the proxy advisory industry. During 2007-2017, the market share of the two largest proxy advisory firms has declined slightly from 96.5 percent to 91 percent, with Institutional Shareholder Services (ISS) controlling 63 percent of the market and Glass Lewis 28 percent in the most recent year. A large fraction of ISS customers appear to have robo-voted – followed ISS’s recommendations in over 99.9 percent of contentious proposals – rising from 5 percent in 2007 to 23 percent in 2017, while almost none of Glass Lewis’ customers have robo-voted. Negative recommendations from ISS or Glass Lewis reduce their customers’ votes by over 20 percent in director elections and say-on-pay proposals. Finally, proxy advisors cater to investors’ preferences, adjusting their recommendations to align with fund preferences independent of whether those adjustments lead to recommendations that maximize firm value.CEO Turnover and Director Reputation
Abstract
This paper analyzes the reputational effects of forced CEO turnovers on outside directors. Directors interlocked to a forced CEO turnover experience large and persistent increases in withheld votes at subsequent re-elections relative to non-turnover-interlocked directors. Reputational losses are larger for turnovers with a higher potential for disrupting a firm’s management, for directors favorably inclined to the CEO, and for directors with a committee-based responsibility for monitoring the CEO. Our results imply that the average forced CEO turnover signals a governance failure at the board level, and that investors rely on salient actions to update their beliefs about directors’ hidden qualities.Errors in Shareholder Voting
Abstract
Voting errors occur when bad proposals pass (false positives) and good proposals fail (false negatives). We develop a structural empirical framework to study voting errors for shareholder proposals. Over one-quarter of vote outcomes are mistakes, with 6% (21%) as false positives (negatives). Prices respond negatively to false positives. Sophisticated owners are generally associated with fewer false positives and more false negatives, but high passive ownership is associated with worse overall outcomes and activists with better. Our evidence contributes to policy debates on proxy access and advisors and investor communication by showing voting errors are common and passing bad proposals is costly.Discussant(s)
David Musto
,
University of Pennsylvania
Nadya Malenko
,
University of Michigan
Reena Aggarwal
,
Georgetown University
Michelle Lowry
,
Drexel University
JEL Classifications
- G3 - Corporate Finance and Governance