The Role of Proxy Advisors and Large Passive Funds in Shareholder Voting: Lions or Lambs?

Proxy advisory firms and large passive mutual funds have faced criticism both for being too powerful and not exercising diligence in proxy voting. We document that the ``Big 3'' passive fund families, Blackrock, State Street, and Vanguard, are increasingly likely to vote with management, and their support is paramount in approving controversial proposals. Meanwhile, mutual funds overall are increasingly less likely to vote according to ISS recommendations. Moreover, neither ISS nor Glass-Lewis recommendations are predictive of controversial proposals passing, especially post-financial-crisis. Our findings suggest that the Big 3 are increasingly influential in voting, and that ISS appears less influential over time.

Keywords: Corporate Voting, Mutual Funds, Index Funds, Big 3, Proxy Advisory Firms, Corporate Governance

JEL Classification: G23, G34, K22

Suggested Citation: Suggested Citation

Boone, Audra and Gillan, Stuart L. and Towner, Mitch, The Role of Proxy Advisors and Large Passive Funds in Shareholder Voting: Lions or Lambs? (February 20, 2020). 2nd Annual Financial Institutions, Regulation and Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=2831550 or http://dx.doi.org/10.2139/ssrn.2831550