Does Confidential Proxy Voting Matter?

Posted: 8 Jan 2004

See all articles by Roberta Romano

Roberta Romano

Yale Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper


Confidential voting in corporate proxies is a principal recommendation in activist institutional investors' guidelines for corporate governance. This article examines the impact of the adoption of confidential corporate proxy voting on proposal outcomes through a panel data set of shareholder and management proposals at firms that adopted confidential voting. Institutional investors promoting confidential voting maintain that private sector institutions have conflicts of interest that prevent them from voting against management even though to do so would maximize the value of their shares; they contend that anonymous ballots will enable such investors to vote their true interest, and thereby anticipate reduced support for management proposals and increased support for shareholder proposals. The article finds, contrary to confidential voting advocates' expectations, that adoption of confidential voting has no significant effect on voting outcomes. Voting outcomes are best explained by proposal type; neither institutional nor insider ownership, nor prior performance, significantly affect the level of support a proposal receives. Moreover, the conflict of interest hypothesis is not supported in the data, as private institutional holdings post-adoption of the voting reform do not affect the support level for proposals. These results are not a function of selection bias in the ownership of firms with confidential voting: firms that have adopted the voting procedure in fact have higher ownership levels of investors with supposed conflicts (banks and insurance companies) than firms that have been subjected to confidential voting proposals and not adopted the practice. Moreover, the ownership level of the firms by such investors does not change after adoption of the practice, nor does the ownership level of the class of institutions that includes the principal advocates of confidential voting (public pension funds). Confidential voting also does not affect firms' stock performance. The results suggest that institutional investor initiatives directed at confidential voting are not a fruitful allocation of investors' resources.

Keywords: Corporate governance, shareholder voting, institutional activism

JEL Classification: G34, K22

Suggested Citation

Romano, Roberta, Does Confidential Proxy Voting Matter?. Journal of Legal Studies, Vol. 32, No. 2, pp.465-509, June 2003. Available at SSRN:

Roberta Romano (Contact Author)

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
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203-432-4871 (Fax)

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

B-1050 Brussels


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