Shareholder Voting in Proxy Contests for Corporate Control, Uncontested Director Elections and Management Proposals: A Review of the Empirical Literature

While the board of directors manages and directs the business and affairs of a corporation, the shareholders have distinctly more limited powers: they may sell their shares, vote where allowed, or sue the company and its management to enforce its officers and directors’ fiduciary duties. Our article (available here) focuses on shareholder voting in the United States by surveying the empirical literature. The article seeks to gain a better understanding of the actual role that shareholders play in their corporations – the extent and limit of their influence and whether their efforts increase or decrease corporate value – and compare these results with the theoretical literature.

The article focuses on votes related to contested and uncontested director elections and on management proposals. To our knowledge, all studies on these subjects have been examined and reflected in the paper as of the original submission in December 2016. 

While much of current theory depicts shareholder votes as an ineffective control on the board’s decision making, the empirical literature paints a more nuanced picture. When a proxy contest breaks out, shareholders wield immense influence. These contests tend to have significant benefits for the corporation, including facilitating a change in management, reducing unnecessary liquidity, and prompting the pay out of dividends. Even in uncontested director elections, shareholders’ decisions to vote for or withhold their vote reflect the company’s performance. The decision to withhold has some albeit slight impact on improving corporate performance going forward. 

Finally, the evidence suggests that shareholders seriously scrutinize management proposals, instead of blindly following management. ISS and institutional investors have led the charge in this area. For votes on mergers and acquisitions, shareholders do not block all bad acquisitions but do push the scales towards maximizing company value. For management compensation proposals, shareholders appear largely unconcerned with the company’s performance but deeply concerned with how the plan dilutes share value. Overall, shareholder voting plays a significant role in corporate management that deserves further research. 

Randall S. Thomas is the John S. Beasley II Professor of Law and Business at Vanderbilt Law School and a Professor of Management at Vanderbilt University’s Owen Graduate School of Management. Patrick C. Tricker is an Associate with Davis & Harman LLP in Washington, D.C.