Working Paper: NBER ID: w9126
Authors: Roberta Romano
Abstract: Confidential voting in corporate proxies is a principal recommendation in activist institutional investors' guidelines for corporate governance reforms. This paper examines the impact of the adoption of confidential voting on proposal outcomes through a panel data set of shareholder and management proposals submitted from 1986-98 to 130 firms that adopted confidential voting in those years. Institutional investors promoting confidential voting maintain that private sector institutions have conflicts of interest that prevent them from voting against management even though to do so would maximize the value of their shares; they contend that anonymous ballots will enable such investors to vote their true interest, and thereby anticipate reduced support for management proposals and increased support for shareholder proposals. The paper finds, contrary to confidential voting advocates' expectations, that adoption of confidential voting has no significant effect on voting outcomes. Voting outcomes are best explained by proposal type; neither institutional nor insider ownership, nor prior performance, significantly affect the level of support a proposal receives. Moreover, the conflict of interest hypothesis is not supported in the data, as private institutional holdings post-adoption of the voting reform do not affect the support level for proposals. Confidential voting also does not affect firms' stock performance. The results suggest that institutional investor initiatives directed at confidential voting are not a fruitful allocation of investors' resources
Keywords: confidential voting; corporate governance; institutional investors; proxy voting
JEL Codes: G34; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Confidential voting (D79) | Voting outcomes for shareholder and management proposals (G34) |
| Type of proposal (C90) | Voting outcomes for shareholder and management proposals (G34) |
| Private institutional holdings (G23) | Support levels for proposals (E64) |
| Institutional ownership (G32) | Support levels for proposals (E64) |
| Prior performance (L25) | Support levels for proposals (E64) |
| Confidential voting (D79) | Firms' stock performance (L25) |