Nonbinding Voting for Shareholder Proposals

44 Pages Posted: 12 Jan 2009 Last revised: 25 Apr 2014

See all articles by Doron Levit

Doron Levit

University of Washington, Foster School of Business; European Corporate Governance Institute (ECGI)

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: October 1, 2011

Abstract

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

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

Doron Levit (Contact Author)

University of Washington, Foster School of Business ( email )

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Seattle, WA 98195
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HOME PAGE: http://https://sites.google.com/view/doronlevit

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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