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Shareholder Voting in an Age of Intermediary Capitalism

dc.contributor.authorEdelman, Paul H.
dc.contributor.authorThomas, Randall S., 1955-
dc.contributor.authorThompson, Robert B., 1949-
dc.date.accessioned2015-11-06T01:21:07Z
dc.date.available2015-11-06T01:21:07Z
dc.date.issued2014
dc.identifier.citation87 S. Cal. L. Rev. 1359 (2014)en_US
dc.identifier.urihttp://hdl.handle.net/1803/7272
dc.descriptionarticle published in law reviewen_US
dc.description.abstractShareholder voting is a key part of contemporary American corporate governance. As numerous contemporary battles between corporate management and shareholders illustrate, voting has never been more important. Yet, traditional theory about shareholder voting, rooted in concepts of residual ownership and a principal/agent relationship, does not reflect recent fundamental changes as to who shareholders are and their incentives to vote (or not vote). In the first section of the article, we address this deficiency directly by developing a new theory of corporate voting that offers three strong and complementary reasons for shareholder voting. In the middle section, we apply our theory to a world where most shares are held by institutional investment intermediaries (and mostly within retirement plans). We show that intermediaries’ business plans give them little reason to vote those shares and even create conflicts of interest that may distort their votes. Yet several key developments have countered that reality and opened the way for voting’s new prominence. First, government regulations now require many institutions to vote their stock in the best interests of their beneficiaries. Second, subsequent market innovations led to the birth of third party voting advisors, including Institutional Shareholder Services (ISS), which help address the costs of voting and the collective action problems inherent in coordinated institutional shareholder action. Third, building on these developments, hedge funds have aggressively intervened in corporate governance at firms seen as undervalued, regularly using the ballot box to pressure targeted firms to create shareholder value, thereby giving institutional shareholders a good reason to care about voting. But there is more to the corporate franchise than hedge fund inspired voting. Say on Pay proposals, Rule 14a-8 corporate governance proposals, and majority vote requirements for the election of directors, are all important, recurrent topics involving shareholder votes. We must also explain why these lower value votes should be held. In our concluding section, we apply our theory to examine when shareholder voting is justified. We examine hedge fund activism as an example of high value voting situation and Say on Pay votes as an illustration of lower value cases where there are still good reasons to have shareholder votes.en_US
dc.format.extent1 PDF (77 pages)en_US
dc.format.mimetypeapplication/pdf
dc.language.isoen_USen_US
dc.publisherSouthern California Law Reviewen_US
dc.subjectShareholder votingen_US
dc.subjectInvestment intermediariesen_US
dc.subjectInstitutional Shareholder Servicesen_US
dc.subjectSay on Payen_US
dc.subject.lcshCorporate governance -- United Statesen_US
dc.subject.lcshCorporations -- Investor relations -- United Statesen_US
dc.subject.lcshStockholders' voting -- United Statesen_US
dc.subject.lcshInstitutional investments -- United Statesen_US
dc.subject.lcshInstitutional investors -- United Statesen_US
dc.subject.lcshHedge fundsen_US
dc.titleShareholder Voting in an Age of Intermediary Capitalismen_US
dc.typeArticleen_US
dc.identifier.ssrn-urihttp://ssrn.com/abstract=2401746


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