44 Pages Posted: 12 Jan 2009 Last revised: 25 Apr 2014
Date Written: October 1, 2011
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.
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, K22
Suggested Citation: Suggested Citation
Levit, Doron and Malenko, Nadya, Nonbinding Voting for Shareholder Proposals (October 1, 2011). Journal of Finance, Vol. 66, No. 5, 2011. Available at SSRN: https://ssrn.com/abstract=1325504