Nonbinding Voting for Shareholder Proposals
University of Pennsylvania - Finance Department
Boston College - Carroll School of Management
October 1, 2011
Journal of Finance, October 2011
Rock Center for Corporate Governance Working Paper No. 37
Shareholder proposals are a common form of shareholder activism. Voting for shareholder proposals, however, is nonbinding since management has the authority to reject the proposal even if it received majority support from shareholders. We analyze whether nonbinding voting is an effective mechanism for conveying shareholder expectations. We show that, unlike binding voting, nonbinding voting generally fails to convey shareholder views when manager and shareholder interests are not aligned. Surprisingly, the presence of an activist investor who can discipline the manager may enhance the advisory role of nonbinding voting only if conflicts of interest between shareholders and the activist are substantial.
Number of Pages in PDF File: 44
Keywords: Shareholder voting, shareholder proposals, non-binding proposals, precatory resolutions, advisory vote, strategic voting, majority rule, information aggregation, proxy fight, shareholder activism
JEL Classification: D72, D74, D82, D83, G34, K22Accepted Paper Series
Date posted: January 12, 2009 ; Last revised: June 13, 2012
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