Does Proxy Advice Allow Funds to Cast Informed Votes?

Abstract

This paper investigates if proxy advice leads mutual funds to vote as if they had acquired information on their own. We find, for the period 2004-2017, that advice from Glass Lewis typically moved fund voting in the same direction as self-information, while advice from ISS led funds to vote in the opposite direction. A vote was “self-informed” vote if the fund visited and downloaded information about a company from the SEC’s Edgar website before voting. A fund’s proxy advisor is identified from the format of its regulatory filing. We also find that ISS advice typically made funds more likely to support outcomes preferred by socially responsible investors. We suggest that ISS may have slanted its recommendations in response to pressure from socially responsible investors that wanted to influence ISS’s robo-voting customers.

Keywords: Proxy voting, proxy advice, corporate governance, shareholder rights

JEL Classification: G3, G34, K22