Doing the Right Thing? The Voting Power Effect and Institutional Shareholder Voting
Employing a combined experimental and survey approach, we examine the effect of voting power on voting behavior at shareholder meetings. To avoid possible selection bias in archival voting data, we exogenously manipulate shareholder power to affect the outcome. Our findings suggest that in the approval of corporate decisions involving conflicts of interest, voting power nudges shareholders to oppose management and to choose the “right” alternative, that is, to vote against a proposal which ostensibly does not serve the company’s best interest. This effect emerges even when the dissenting vote stood in opposition to that of all their peers’ and even in opposition to the self-interest of the shareholder. Furthermore, we find that strategic voting among institutional investors is contingent on voting power: When in a position to affect the outcome, institutional investors tend to take fewer strategic considerations into account and follow fewer consistent patterns in their voting, relative to situations in which their ability to affect the outcome is limited. When confronting the prospect of a “bad” proposal coming before the general shareholders meeting, institutional investors prefer to negotiate terms with management, and vote against it only after such negotiations fail. Our results shed additional light on the ‘behind the scenes’ processes involved in shareholder voting and underscore the importance of institutional investor agency to corporate governance, accountability and minority shareholder representation. The data include: i)First Phase: M-Turk Experiment Design (3 studies); ii) Second Phase: Institutional Investor Employee Survey.