Custom Proxy Voting Advice

65 Pages Posted: 15 Apr 2024 Last revised: 24 Apr 2024

See all articles by Edwin Hu

Edwin Hu

New York University School of Law

Nadya Malenko

Boston College, Carroll School of Management; National Bureau of Economic Research (NBER); Finance Theory Group (FTG); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Jonathon Zytnick

Georgetown University Law Center

Date Written: March 24, 2024

Abstract

This paper studies institutional investors’ decision-making using novel data from a major proxy advisor. We highlight the significant role of customized proxy advice in shaping shareholders’ voting decisions. About 80% of funds receive customized advice, and custom recommendations differ substantially from benchmark recommendations. We show that customization plays two key roles. First, it helps shareholders express their ideologies through the vote. Second, it facilitates shareholders’ decision-making process by reducing the need to pay attention to every proposal individually and enabling focus on the more important proposals. Customization thus influences both the aggregation of preferences and the aggregation of information in voting outcomes. Our findings offer a new perspective on the role of proxy advisors and suggest a shift away from solely focusing on benchmark recommendations.

Keywords: Proxy voting, proxy advisory firms, ideology, customization, benchmark recommendations, research, attention to voting

JEL Classification: G23, G34, G38, D72, K22

Suggested Citation

Hu, Edwin and Malenko, Nadya and Zytnick, Jonathon, Custom Proxy Voting Advice (March 24, 2024). European Corporate Governance Institute – Finance Working Paper No. 975/2024, Available at SSRN: https://ssrn.com/abstract=4770971 or http://dx.doi.org/10.2139/ssrn.4770971

Edwin Hu

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Nadya Malenko (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Finance Theory Group (FTG) ( email )

United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jonathon Zytnick

Georgetown University Law Center ( email )

HOME PAGE: http://jonzytnick.com

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