Auditor Ratification: Can't Get No (Dis)Satisfaction

Abstract

The auditor ratification vote provides shareholders with an opportunity to voice their opinions about the company’s choice of auditor, but historically, less than two percent of shareholders express dissent in their vote. Motivated by regulatory attention on the importance of shareholder involvement and the institutional power of proxy advisors on voting outcomes, I examine the proxy advisor’s role in the auditor ratification vote. I find that proxy advisors have a statistically significant influence over shareholder voting outcomes when they recommend against auditor ratification, but the Against recommendation is rare, and the qualitative significance is less clear. Proxy advisor Against recommendations are based on concerns about auditor independence and poor audit quality, but there appears to be variation in the extent to which proxy advisors issue Against recommendations for each of these criteria. I discuss the implications of the findings, which should be of interest to regulators, investors, public companies, and audit firms.

Keywords: auditor ratification; corporate governance; proxy advisor; proxy disclosure; shareholder voting

JEL Classification: G38, M41