Creating Controversy in Proxy Voting Advice

Abstract

We analyze how a profit-maximizing proxy advisor designs vote recommendations and research reports. The advisor benefits from producing informative, unbiased reports, but only partially informative recommendations, biased against the a priori likely alternative. Such recommendations induce close votes, increasing controversy, and thereby the relevance and value of proxy advice. Our results suggest shifting from an exclusive emphasis on recommendations, highlighting the importance of both reports and recommendations in proxy advisors' information provision. They rationalize the one-size-fits-all approach and help reinterpret empirical patterns of voting behavior, suggesting that proxy advisors' recommendations may not be a suitable benchmark for evaluating shareholders' votes.

Keywords: proxy advisor, voting, sale of information, information design, Bayesian persuasion, research reports, vote recommendations, one-size-fits-all, close votes

JEL Classification: D72, D82, D83, G34, K22