While it’s certainly true that in most instances, a retail shareholder’s participation will have no impact whatsoever on the outcome of a proxy vote, I think this breakdown of proxy proposals may obscure more than it clarifies. After all, the biggest reason why an individual shareholder’s votes typically make no difference is because the vast majority of ballot items each proxy season are uncontested. Presumably, thecommexokid is not wondering how they should vote on those. And with respect to meaningfully contested ballot items, I think it’s probably not quite right to say that the majority are proposed by cranks. Among other things, only about a quarter of shareholder proposals are proposed by retail shareholders of any variety. (It’s worth noting that in the U.S., companies regularly receive the SEC’s permission to exclude genuine crank proposals from their proxy statements on a variety of legal grounds.)
The vast majority of shareholder proposals in the U.S. fall into one of three categories: requests for certain kinds of disclosures (e.g. of environmental impact, of lobbying expenditures, of pay equity data, etc.), changes to technical governance rules (e.g. the requirements for proxy access or for calling a special meeting), and activist hedge funds seeking to replace members of a board of directors. In most cases, these are proposed in the context of some kind of organized campaign. This doesn’t guarantee that the vote will be close (obviously, many such campaigns are not meritorious), but it does mean that more often than not, the contested shareholder proposals that make it onto companies’ proxies have non-trivial support within the shareholder base. Consider, for instance, that around 37% of proposals submitted by public pension funds passed in 2017, as did 20% of proposals submitted by hedge funds. Moreover, sometimes, those votes do end up being quite close! And even if a vote fails (by a modest margin), it can send a powerful signal to the management and the board. Notably, whenever an executive pay package receives less than around 70% shareholder support in the U.S., there is a strong norm (supported by the major proxy advisors) for the company to propose a more modest package the following year.
Admittedly, the domains on which shareholders can exercise influence through the proxy process do not lend themselves to promoting the kinds of change that a socially concerned (or EA-focused) investor might like to see (in the U.S., the operations of the company are strictly off-limits). However, it isn’t difficult to imagine a story in which a particular shareholder’s vote mattered in bringing about a meaningfully positive outcome. If a person is already inclined to look into this stuff—perhaps because they find it interesting and have a bit of free time—I don’t think it’s unreasonable to try one’s best to use this resource, however modest, to bring about some good. After all, hedge fund activism in particular can be quite high-stakes. It’s plausible that it really does matter in some of those cases that the right side wins. And as far as disclosure campaigns go, making more information available to researchers, investors, employees, and consumers seems likely to, more often than not, improve the function of markets and maybe even advance the social good.
While it’s certainly true that in most instances, a retail shareholder’s participation will have no impact whatsoever on the outcome of a proxy vote, I think this breakdown of proxy proposals may obscure more than it clarifies. After all, the biggest reason why an individual shareholder’s votes typically make no difference is because the vast majority of ballot items each proxy season are uncontested. Presumably, thecommexokid is not wondering how they should vote on those. And with respect to meaningfully contested ballot items, I think it’s probably not quite right to say that the majority are proposed by cranks. Among other things, only about a quarter of shareholder proposals are proposed by retail shareholders of any variety. (It’s worth noting that in the U.S., companies regularly receive the SEC’s permission to exclude genuine crank proposals from their proxy statements on a variety of legal grounds.)
The vast majority of shareholder proposals in the U.S. fall into one of three categories: requests for certain kinds of disclosures (e.g. of environmental impact, of lobbying expenditures, of pay equity data, etc.), changes to technical governance rules (e.g. the requirements for proxy access or for calling a special meeting), and activist hedge funds seeking to replace members of a board of directors. In most cases, these are proposed in the context of some kind of organized campaign. This doesn’t guarantee that the vote will be close (obviously, many such campaigns are not meritorious), but it does mean that more often than not, the contested shareholder proposals that make it onto companies’ proxies have non-trivial support within the shareholder base. Consider, for instance, that around 37% of proposals submitted by public pension funds passed in 2017, as did 20% of proposals submitted by hedge funds. Moreover, sometimes, those votes do end up being quite close! And even if a vote fails (by a modest margin), it can send a powerful signal to the management and the board. Notably, whenever an executive pay package receives less than around 70% shareholder support in the U.S., there is a strong norm (supported by the major proxy advisors) for the company to propose a more modest package the following year.
Admittedly, the domains on which shareholders can exercise influence through the proxy process do not lend themselves to promoting the kinds of change that a socially concerned (or EA-focused) investor might like to see (in the U.S., the operations of the company are strictly off-limits). However, it isn’t difficult to imagine a story in which a particular shareholder’s vote mattered in bringing about a meaningfully positive outcome. If a person is already inclined to look into this stuff—perhaps because they find it interesting and have a bit of free time—I don’t think it’s unreasonable to try one’s best to use this resource, however modest, to bring about some good. After all, hedge fund activism in particular can be quite high-stakes. It’s plausible that it really does matter in some of those cases that the right side wins. And as far as disclosure campaigns go, making more information available to researchers, investors, employees, and consumers seems likely to, more often than not, improve the function of markets and maybe even advance the social good.
Thanks, good comment!