Optional Shareholder Voting

Shareholder voting represents one of the most direct forms of monitoring firms. However, only mutual funds are required to vote, and mutual funds represent just 1/8 of total institutional ownership in the US. All other institutions are classified as institutional managers (IMs), a group that includes hedge funds, activists, and private wealth managers. Strikingly, only 44% of IMs choose to vote, and a third have a stated policy of never voting.

While only a subset of IMs vote, their aggregate voting footprint is over twice as large as that of mutual funds: $22 trillion versus $9 trillion in 2025. Do IMs vote differently than mutual funds? We find that they do. 

Newly available disclosures on Institutional Manager (IM) votes

Following implementation of SEC Rule 14Ad-1 in July 2023, IMs are now required to disclose their votes on say-on-pay (SOP) proposals. SOP is a required agenda item at firms’ annual meetings, in which shareholders ‘approve’ or ‘vote against’ the CEO’s compensation package. Prior research shows that low votes lead to changes in firms’ compensation policies and governance practices. We use these disclosures to study SOP votes at more than 7,000 annual meetings from 2023 to 2025.

Who chooses to vote?

IMs should be more likely to vote on firms in which they hold large dollar positions. The benefits of voting increase with position size, while the costs are largely fixed. Benefits can include both a higher probability of influencing the vote outcome and greater access to management.

The data strongly support this prediction. The probability of voting increases from 42% among the smallest position size quintile to 67% among the largest quintile. This increase reflects two dynamics: larger IMs are more likely to vote, and within each IM larger holdings are more likely to be voted. Both effects play a role, but institution size matters more.

We also find differences across types of IMs: 81% of activists and 73% of hedge funds vote, compared to just 29% of private wealth managers.

Vote direction: contrasting patterns between IMs and mutual funds

As position sizes increase, IMs and mutual funds follow opposite voting strategies: IMs become more likely to vote against management while mutual funds become more supportive. Among the smallest position size quintile, IMs are 5 percentage points more pro-management than mutual funds, and this increases to 15–27 percentage points among contentious issues. In contrast, among the largest positions, mutual funds are 4 percentage points more pro-management than IMs, rising to 5–8 points among contentious issues.

Why the difference? Among small positions, where the benefits of voting are low, all institutions rationally choose a low-cost benchmark strategy. Mutual funds, which must vote all portfolio firms, are more likely to follow ISS or another proxy advisor. In contrast, IMs more often abstain or simply follow management, indicating that they engage in relatively little monitoring in these cases.

Among large positions, the voting pattern flips. IMs are significantly more likely to use voting as a means of monitoring. They rationally conduct more research on larger positions, which in turn increases the likelihood of discovering problems at the firm and thus voting against management.

In contrast, mutual funds’ more pro-management stance among large positions suggests that they prioritize access to management. This greater access may facilitate engagement, or it may be motivated by conflicts of interest, such as management of firms’ pension plans. Further investigation provides some support for the influence of business ties. Such ties are indeed more common among mutual funds: within the largest holdings, 15% of mutual fund–portfolio firm pairs involve pension relationships, compared to 2% among IMs. However, these business ties explain only a small portion of mutual funds’ pro-management stance, suggesting that other factors contribute to their relatively high support for management.

These differences in voting strategy, across small versus large dollar positions, are primarily driven by the size of the institution, rather than by the holding’s weight in the portfolio.

Effects among underlying firms

The tendency of IMs to vote against management in firms with greater governance concerns is greatest among large IMs. At firms with high cash holdings, abnormally high CEO pay, or long-tenured CEOs, large IMs are two to four percentage points less supportive of management than small IMs, consistent with economies of scale and scope in monitoring.

Overall takeaway

Up until now, the investors who cast most institutional votes have been largely invisible in the voting literature. Our findings indicate that total institutional ownership is a poor proxy for monitoring. Moreover, prior evidence based on mutual funds does not necessarily extend to most institutional investors.  

Peter Iliev is the David B. and Shirley L. Sykes Professor in Finance at the Smeal College of Business, Pennsylvania State University.

Michelle Lowry is the TD Bank Professor of Finance at the LeBow School of Business, Drexel University, and an ECGI Research Member. 

This blog is based on a paper presented at the Corporate Governance Academic Forum at the University of Toronto with ECGI, held on 2 October 2026. Visit the event page to explore more conference-related blogs.

The ECGI does not, consistent with its constitutional purpose, have a view or opinion. If you wish to respond to this article, you can submit a blog article or 'letter to the editor' by clicking here.