Other People's Votes: The Law and Economics of Proxy Advice

Proxy advisors play a central and controversial role in modern corporate governance. Institutional investors rely on advisory firms such as Institutional Shareholder Services and Glass Lewis to provide shareholder voting recommendations, research, and execution infrastructure across thousands of portfolio companies each year, enabling voting at scale. Critics argue that proxy advisors induce “robo-voting,” exercise excessive influence, operate with conflicts of interest, and dominate a concentrated market with limited accountability. In response, federal and state actors have launched an escalating series of investigations, executive actions, and novel statutory and regulatory regimes.

Many existing reform proposals misdiagnose the economic foundations of proxy advice and risk degrading voting quality or driving proxy advisors from the market altogether. Because institutional investors have limited attention budgets, weakening proxy advisory services would likely increase deference to corporate management rather than enhance shareholder oversight.

This Article offers an economic framework for evaluating proxy advice and the reforms proposed to regulate it. We develop a three-stage theory of shareholder voting in which investors (1) select proxy advisors, (2) specify customized voting policies ex ante, and (3) allocate scarce attention across proposals ex post. We complement this framework with empirical evidence on voting patterns that reassesses claims of “robo-voting” and advisor dominance. Together, our analysis situates proxy advice within the collective-action problem inherent in shareholder voting: investors bear the concentrated costs of informed voting while capturing only a fraction of its benefits. Building on this analysis, we propose a targeted reform agenda. First, we recommend requiring proxy advisors to provide “attention flags” identifying recommendations that involve material trade-offs, firm-specific context, or high-stakes decisions, thereby directing investor attention to where it is most valuable. Second, we propose strengthening fiduciary obligations governing proxy voting to ensure meaningful engagement where warranted. We also address firm-specific conflicts of interest and evaluate prominent regulatory approaches, including federal solicitation-based regulation and recent state legislation. Our regulatory framework improves the targeting of investor attention while preserving economies of scale, offering a more promising path forward.