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Standing Voting Instructions: Empowering the Excluded Retail Investor

56 Pages Posted: 13 Jun 2017 Last revised: 22 Jul 2017

Jill E. Fisch

University of Pennsylvania Law School - Institute for Law and Economics

Date Written: June 10, 2017

Abstract

Despite the increasing importance of shareholder voting, regulators have paid little attention to the rights of retail investors who own approximately 30% of publicly traded companies but who vote less than 30% of their shares. A substantial factor contributing to this low turnout is the antiquated mechanism by which retail investors vote. The federal proxy voting rules place primary responsibility for facilitating retail voting in the hands of custodial brokers who have limited incentives to develop workable procedures, and current regulatory restrictions impede market-based innovation that incorporate technological innovations.

One of the most promising such innovations is standing voting instructions (SVI). SVI allows investors to designate their voting preferences in advance of shareholders’ meetings and have their shares voted in accordance with those preferences. Although SVI is readily available to institutional investors, the federal proxy rules prevent its use by retail investors, and proposals seeking modifications of these rules have languished before the Securities & Exchange Commission (SEC) for years. The SEC’s primary rationale for failing to act is the concern that SVI will lead to uninformed voting.

This Article addresses and rejects the claim that the risk of uninformed voting justifies the SEC’s failure to remove the regulatory obstacles to SVI. Current technology is consistent with the creation of voting platforms that allow retail investors meaningful participation in the voting process while retaining appropriate safeguards to minimize the potential for adverse effects. Ironically, implementation of voting platforms allowing SVI has the potential to make retail investor voting both more efficient and better informed and to increase the legitimacy of corporate democracy.

Keywords: Corporate governance, directors, boards, shareholders, shareholder rights, shareholder voting, corporate elections, corporate ballot, proxy fights, proxy contests, retail investors, broker voting, innovation, technological innovations in voting, standing voting instructions, SVI

JEL Classification: G30, K22

Suggested Citation

Fisch, Jill E., Standing Voting Instructions: Empowering the Excluded Retail Investor (June 10, 2017). Minnesota Law Review, 2017 Forthcoming; U of Penn, Inst for Law & Econ Research Paper No. 17-23; European Corporate Governance Institute (ECGI) - Law Working Paper No. 360/2017. Available at SSRN: https://ssrn.com/abstract=2972838

Jill Fisch (Contact Author)

University of Pennsylvania Law School - Institute for Law and Economics ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-3454 (Phone)
215-573-2025 (Fax)

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