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Corporate Voting and the Proxy Process: Managerial Control Versus Shareholder Oversight

44 Pages Posted: 22 Jul 2000  

Stuart Gillan

University of Georgia - Department of Finance

Jennifer E. Bethel

Babson College

Date Written: June 2000

Abstract

A rise in shareholder activism and recent changes in the SEC's proxy rules have been accompanied by an increase in shareholders' use of the proxy process. However, because managers have discretion over the design and implementation of the proxy process, issues remain concerning shareholders' ability to initiate change by voting. More generally, we hypothesize that certain features of the institutional and regulatory environment may allow managers to influence shareholder voting turnout and results. To the extent managers may strategically influence votes, they may disenfranchise shareholders and, conceivably, reduce the control rights of shares. We find evidence suggesting that managers control the proxy process and receive a vote-getting advantage from doing so. The results indicate that managers hire proxy solicitors when ballots include nonroutine management or shareholder proposals, and bundle nonroutine management or difficult-to-pass issues with others in joint proposals. It appears that managers also craft proposals so that they are classified as routine, rather than nonroutine, which increases the number of votes cast in support of proposals. We find that routine management proposals received as many as 14.42% more affirmatively cast votes than nonroutine proposals of the same proposal type and as much as 17.25% higher voting turnout. The passage of as many as 5.3% of routine proposals may have been due to their classification as routine rather than nonroutine proposals. Some institutional features, however, appear to constrain managers' ability to gain shareholder votes. Notably, against recommendations from ISS, an advisory service providing voting recommendations to many institutional investors, were associated with 13.63% to 20.56% fewer affirmative votes for management proposals, depending on the specific proposal type.

Keywords: corporate governance, shareholder voting, institutional and regulatory environment

JEL Classification: G30

Suggested Citation

Gillan, Stuart and Bethel, Jennifer E., Corporate Voting and the Proxy Process: Managerial Control Versus Shareholder Oversight (June 2000). Presented at Tuck-JFE Contemporary Corporate Governance Conference. Available at SSRN: https://ssrn.com/abstract=236099 or http://dx.doi.org/10.2139/ssrn.236099

Stuart Gillan (Contact Author)

University of Georgia - Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Jennifer Bethel

Babson College ( email )

Babson Park, MA 02457-0310
United States
781-239-5797 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/bethel/

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