Errors in Shareholder Voting

Abstract

We develop a structural empirical framework to study voting outcomes and the role of proxy advisors for shareholder proposals. Voting errors occur when bad proposals pass (false positives) and good proposals fail (false negatives). 6.5% of voting outcomes for shareholder proposals are mistakes, the majority being false positives. Recommendations by proxy advisor ISS are incorrect roughly half the time. ISS makes more mistakes when they support proposals (70%), but investors rely less on those recommendations than when ISS is not in favor. Errors in voting outcomes are more sensitive to proxy advisor informativeness and influence than to proposal quality.

Keywords: shareholder voting, shareholder proposals, proxy advice, informed voting

JEL Classification: G30