Expressive Voting and Irrational Outcomes in Corporate Elections

Abstract

Over the past three decades shareholders have steadily been provided with greater voting power over corporate decisions. An extensive academic debate has arisen about the character and outcomes of the shareholder franchise. All parties to this debate start with the assumption that shareholders will vote rationally, in their economic interests. There is a large empirical literature in political science, however, that finds where the marginal value of a vote is low, information is processed and votes cast on the basis of strongly-held prejudices, tribal loyalty, mood-affiliation, and to flatter the voter's self-image. In other words, the voter behaves irrationally from the standpoint of the real-world impact of their vote.

This paper reviews the empirical literature around shareholder voting to show irrational voting characterizes the corporate franchise as well. Shareholders give their voting rights almost no value, their voting patterns do not reflect the economic performance of the company, shareholders vote in ways that contradict their economic views (measured by looking at their trading decisions), and the biggest drivers of shareholder voting are empirically questionable and deliberately ineffective corporate governance practices. Fortunately, the empirical political science literature provides some direction for reforming the corporate franchise.

Keywords: Corporate Law, Corporate Finance, Corporate Governance, Shareholder Voting, Political Voting

JEL Classification: K22, K20, G30