The Proxy Voting Choice Revolution

A corporate governance revolution is underway. The conventional depiction of U.S. capital markets has focused on the presence of large institutional shareholders and their substantial influence over the economy. But in the past two years, in response to political and public pressure, the largest institutional asset managers have begun to diffuse their power by expanding “proxy voting choice” programs. Our Article explores how these programs could shape institutional shareholder voting and the corresponding governance and performance of public companies for years to come. 

More specifically, we provide the first empirical analysis of a large asset manager’s voting choice program, providing a detailed account of the differences between policy offerings as well as their relative uptake by investors. Our empirical investigation also generates insights about the impact of proxy voting choice on the marketplace. It reveals that voting choice has promise, but also significant peril, for investors and the corporate governance ecosystem, particularly in light of a host of incentive issues facing its three key players—asset managers, investors, and proxy advisors. We highlight the thorny choice architecture problems that program designers must confront, ranging from setting the default rule to designing policy menus for rationally apathetic investors. In so doing, we offer concrete policy suggestions for asset managers and regulators, showing how careful calibration of these programs will help ensure that the advent of voting choice benefits investors and the economy, rather than harms them.