Individual Investor Ideology

In the political economy literature, there is a longstanding finding that voters swing based on indicators of quality. But quality isn’t the only thing that determines votes. In politics, we’ve long known that people’s views on different issues are connected. If you know someone’s stance on Medicaid, you can probably guess their views on climate regulation, tax policy, and a hundred other questions. Political scientists call this ideology: the tendency to vote predictably across a wide range of issues, presumably because those choices reflect a deeper belief system.

So when investors decide whether to declassify a board, disclose greenhouse gas emissions, or reelect a CEO, are they evaluating proposal quality, or voting ideologically, like citizens in politics? And to the extent it is ideology, what does that ideology look like?

That’s the question we tackle in our paper, Individual Investor Ideology. Using a dataset of more than 500 million votes by individual shareholders, we open the black box of retail investor decision-making.

Our approach borrows from political economy. We first use dimension-reduction tools to map ideological space, then test hypotheses about what drives votes. The results are striking: individual investors, like political voters, divide along a clear ideological line, that boils down to trust versus skepticism of management.

A Unidimensional Politics of Shareholder Voting

When we mapped thousands of retail investors in this voting space, one dominant axis emerged—management versus anti-management. That single factor explained more than half of all variation in retail voting, more than the first two dimensions combined for mutual funds.

Funds, by contrast, divide along multiple axes. They often support management on some proposals while siding with shareholders on others, depending on the topic or the advice of proxy advisors like ISS or Glass Lewis. Retail investors, by contrast, seem to have a simple worldview: either you’re for management, or you’re against it.

This contrast shows clearly in regression analyses. Retail investors who vote with management on director elections almost always do so on executive pay, mergers, governance, and environmental or social (ES) proposals as well. A vote on an ES proposal at one firm is just as predictive of a governance vote at another firm—and far more predictive than for funds. A yes vote on an ES proposal last year triples an investor’s likelihood of voting against management at a different company this year.

It’s the Voter, Not the Proposal

Why do some proposals perform better among retail voters than others? Individuals’ ideology, not firm characteristics or proposal details, explains most of the differences. For ES and governance proposals, more than half the variation in outcomes is driven by the ideological composition of the firms’ shareholders, not by anything about the proposal.

That consistency makes identity far more important than substance. And it comes with an irony: ideological investors may undercut their own influence. Because pro-ES investors tend to hold green firms and anti-ES investors hold brown ones, environmental proposals at oil companies are decided disproportionately by shareholders least inclined to support them. Ideological sorting dulls ideological voting—a real-world illustration of Hirschman’s exit versus voice trade-off.

Politics by Another Name

Shareholder ideology is closely tied to political ideology. Linking investors’ votes to their home ZIP codes, we find that the more Republican a neighborhood, the more its investors vote with management. Liberal areas vote against management, not just on environmental and social issues but also on director elections and mergers. Corporate voting has quietly become another arena where partisan identity shapes behavior—though the participants may not even realize it.

Another surprise: even when shareholders do vary their votes, they often do so in ways hard to square with a quality-based model. Retail investors are more likely to side with management when recent stock returns are high—even on environmental and social proposals, or merger approvals, where strong recent stock performance arguably says little about proposal quality. Their votes appear to reflect changing sentiment toward management, not new information.

What It Means for Pass-Through Voting

The largest asset managers are now offering “pass-through voting,” allowing investors to direct how their fund shares are cast. BlackRock, State Street, and Vanguard each offer simplified “voting menus” that let clients choose ideological packages rather than vote proposal by proposal.

Our results suggest those menus may capture most of what matters anyway. Because individual investors vote along a single ideological dimension, their preferences can be communicated effectively through coarse categories like “pro-management,” “pro-shareholder,” or “pro-ESG.” True one-by-one pass-through voting might not yield meaningfully different results.

Vanguard has indicated that it hopes that 100% of its investors will eventually participate in pass-through voting. In such a world, retail investors would wield dramatically more power—and companies would have new incentives to manage that power. Because retail investors not only vote ideologically but also buy ideologically, firms that cultivate a conservative political identity could attract shareholders more sympathetic to management’s position. The most important determinant of retail voting outcomes is the ideological composition of a company’s investors. A firm with a reputation for being politically conservative—and a shareholder base to match—could perform better in votes even on topics that have no obvious ideological valence. As individual participation rises, the politics of a firm’s investor base may become as strategically important as its fundamentals.

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Jonathon Zytnick is an Associate Professor of Law at Georgetown Law.

Robert J. Jackson is the Nathalie P. Urry Professor of Law at the New York University School of Law, and an ECGI Research Member.

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This blog is based on a paper presented at the First Annual Corporate Governance Academic Forum at the University of Toronto. Visit the event page to explore more conference-related blogs.

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