Enhancing the Value of Shareholder Voting Recommendations

44 Pages Posted: 29 Jun 2019 Last revised: 5 Feb 2020

See all articles by Bernard S. Sharfman

Bernard S. Sharfman

RealClearFoundation; Law & Economics Center at George Mason University’s Antonin Scalia Law School

Date Written: February 4, 2020


Investment advisers to mutual funds, exchange-traded funds, and separately managed accounts are typically delegated the authority to vote their clients’ securities. When this delegation occurs, these investment advisers have a fiduciary duty to vote their proxies, typically the voting rights associated with a company’s common stock, in the best interest of their clients. This duty creates the following corporate governance issue: How can these investment advisers become informed voters without requiring them to read massive amounts of information on the hundreds or thousands of companies they have invested in for the thousands, tens of thousands, or even hundreds of thousands of shareholder votes they are confronted with each year?

A critical step in resolving this issue is maximizing the ability of investment advisers to avail themselves of voting recommendations that are made on an informed basis and with the expectation that they will lead to shareholder wealth maximization. One way to achieve this maximization is for the SEC to recognize the value of board recommendations and explicitly state that their use will allow investment advisers to meet their fiduciary duties when voting their proxies. Another way is to make sure that the voting recommendations provided by proxy advisors are truly informed ones. This leads to the recommendation that the proxy advisor should be held to the standard of an information trader.

Keywords: shareholder voting, Investment Advisers Act of 1940, fiduciary duties, shareholder voting recommendations, securities law, corporate law, proxy advisors, information trader, board of directors

JEL Classification: K2, K22

Suggested Citation

Sharfman, Bernard S., Enhancing the Value of Shareholder Voting Recommendations (February 4, 2020). 86 Tenn. L. Rev. 691 (2019), Available at SSRN: https://ssrn.com/abstract=3305372 or http://dx.doi.org/10.2139/ssrn.3305372

Law & Economics Center at George Mason University’s Antonin Scalia Law School ( email )

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