Enhancing the Value of Shareholder Voting Recommendations
28 Pages Posted: 10 Jan 2019 Last revised: 12 Mar 2019
Date Written: March 10, 2019
This writing addresses a fundamental issue in corporate governance. If institutional investors such as investment advisers to mutual funds have a fiduciary duty to vote the shares of stock that they owned on behalf of their investors, then how do we practically achieve informing them on how to vote their proxies without requiring each institutional investor 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 votes they are confronted with each year?
A critical step in resolving this issue is maximizing the ability of institutional investors 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 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. Another way 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.
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: Suggested Citation