The Risks and Rewards of Shareholder Voting

Abstract

The Securities and Exchange Commission’s (“SEC” or “Commission”) recent staff roundtable on the proxy process, and its resulting guidance, interpretation and proposed rules on limiting the use of shareholder proposals, regulating proxy advisors and their creation of shareholder voting recommendations for investment advisers, and increasing the fiduciary burden on investment advisers to make sure that the voting recommendations provided by proxy advisors are adequately informed and nonconflicted, has made shareholder voting the most prominently debated corporate governance issue of recent times. The number of comment letters submitted to the SEC have been voluminous, which includes eight submitted by this Article’s author. Yet, I doubt many of the writers of these letters, except in the context of their political agendas, have really thought deeply about the role played by shareholder voting in the governance of corporations; the collective action problem that is imbedded in such voting and how this problem needs to be managed; the inability of proxy advisors to solve the collective action problem; the objective of shareholder voting; and how and when shareholder voting creates value. This Article is dedicated to filling in the gap in our collective understanding of shareholder voting.

Keywords: shareholder proposals, shareholder voting, securities regulation, corporate governance

JEL Classification: K2, K22