Non-Binding Voting for Shareholder Proposals

Abstract:     
Voting for shareholder proposals is non-binding in the sense that the management has the authority to reject the proposal even if it received majority support from shareholders. We analyze whether non-binding voting is an effective mechanism for conveying shareholder expectations. We show that in contrast to binding voting, non-binding voting generally fails to convey shareholder views when the interests of the manager and shareholders are not aligned. Surprisingly, the presence of an activist investor who can discipline the manager may enhance the advisory role of non-binding voting only if there is substantial conflict of interest between shareholders and the activist.

Keywords: Shareholder voting, shareholder proposals, non-binding proposals, precatory resolutions, advisory vote, strategic voting, majority rule, information aggregation, proxy fight, shareholder activism

JEL Classifications: D72, D74, D82, D83, G34, K22

Working Paper Series