Support the Boards. But Few of Them Vote.
Timothy J. Sloan, Wells Fargo’s
chief executive, testifying on Tuesday before the Senate Banking
Committee. At the company’s annual meeting in April, with the
bank under pressure for questionable sales practices, individual
investors showed little engagement.
Aaron P. Bernstein/Reuters.
Institutional investors have been flexing their muscles on corporate
governance issues this year. So why do individual investors continue
to be so disengaged on these matters?
A recent analysis of investor voting at annual shareholder meetings
highlights a striking contrast between the views of institutional
investors and those of individuals. It was conducted by Broadridge
Financial Solutions, a technology and data analytics firm and
PricewaterhouseCoopers, the auditing and professional services firm,
and it compared the votes of endowments, pension funds and mutual
funds with those of retail investors at almost 3,400 annual meetings
between Jan. 1 and June 30 of this year.
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The analysis found that even as more institutions are voting their
shares against corporate management on environmental matters,
executive pay and board diversity, individuals’ votes are more likely
to support the executives.
Of the shares voted by institutions this year, 54 percent favored shareholder
proposals urging companies to make disclosures about the effects of climate
change on their businesses. But only 10 percent of shares held by individuals
were cast in support of these proposals.
aiming to improve board diversity, almost one-third of institutional shares were
cast in support. But only 14 percent of retail investors’ shares favored
bringing more diversity to the ranks of corporate directors.
The same split
between institutions and individuals also emerged on the topic of questionable
executive pay practices. At the 32 companies whose pay programs failed to win
majority support from shareholders this year, individual investors were twice as
likely as institutions to vote in favor of that compensation. Some 66 percent of
individuals’ shares were cast in support of companies whose pay plans failed to
win majority approval, compared with 32 percent of institutions’ shares.
To a great degree,
these figures reflect the fact that institutions hold the overwhelming portion
of company shares — 70 percent to individuals’ 30 percent, Broadridge data
But do the results
prove that individual investors are pleased with the way corporations are
managing governance matters? While executives might want to believe this, it’s
probably not the case, according to experts who study shareholder voting. They
contend that for individual investors, the proxy voting system is onerous,
frustrating and broken. A result, they say, is that annual vote tallies
represent only a small portion of individual investors’ shares and views.
Voting is just too
hard for retail investors, said
Jill E. Fisch, a professor at the
University of Pennsylvania Law School, and co-director of its Institute for Law
and Economics. “It’s not surprising that they often give up,” she added. “As a
result, there’s a group of investors that corporate managers aren’t hearing from
study bears this out. It found that 91 percent of the shares owned by
institutional investors — but only 29 percent of those held by individuals —
were voted during the most recent proxy season on director elections and
shareholder proposals covering the full array of governance issues.
Voting is too difficult for
retail investors, Jill E. Fisch, a professor at the University
of Pennsylvania Law School, said. “It’s not surprising that they
often give up.”
Ryan Collerd for The New York Times
reason for this divergence is that institutions are generally required
to vote their shares as part of their fiduciary duty to the investors
or pension beneficiaries whose money they oversee. “Institutions vote
at very high rates,” said Chuck Callan, senior vice president for
regulatory affairs at Broadridge, in an interview. “Retail
shareholders are not required to vote by law or regulation. Typically,
the understanding has been that if these shareholders have a problem
with a company, they vote with their feet.” In other words, they sell
But if you examine
the results of almost any annual shareholder meeting, it also becomes clear that
throngs of individual investors were absent this year in voting on directors and
other governance issues.
keep their shares at their brokerage firms, but the brokers cannot vote them on
the clients’ behalf. Instead, the investors have to cast their votes by mail, on
the phone or online. Those who fail to do so are categorized as broker nonvotes
in regulatory filings.
Even at troubled
companies, this inertia can be widespread and surprising. At Wells Fargo’s
annual meeting in April, for example, when the company came under pressure for
its questionable sales practices, roughly four billion shares were voted in the
director elections. Broker nonvotes on those elections totaled almost 500
investors, meanwhile, have it easier when they vote their shares. They can take
advantage of technological advancements in voting platforms that allow them to
leave standing instructions on how they want their votes cast on particular
“Because they have
such a huge work flow, institutions will flag certain types of proposals and
will develop guidelines on how they want to vote on them,” Mr. Callan said.
“Platforms for institutions integrate all that.”
Ms. Fisch, the law
professor, asked why a similar process couldn’t be set up for individual
investors. In a coming
article in the Minnesota Law Review, she
argued that low individual investor turnout is a result of an antiquated voting
system. In the article, “Standing Voting Instructions: Empowering the Excluded
Retail Investor,” she contended that “current regulatory restrictions impede
market-based innovation” that could allow individual investors’ voices to be
The Securities and
Exchange Commission has weighed in on this problem recently. Acknowledging that
the low level of voting by individual investors is a concern, it sponsored a
roundtable on proxy voting in 2015. A major
agenda item was how to increase individual investor participation.
But proposals for
a system that would allow individuals to leave standing instructions for the
voting of their shares have gone nowhere. As Ms. Fisch noted, the commission has
voiced concerns that such a system would require investors to make voting
decisions before they had received proxy materials “containing the disclosures
mandated under the federal securities laws and possibly without consideration of
the specific issues to be voted upon.” The agency also warned that the
availability of standing voting instructions might mean investors would not
bother to read the proxy statement.
have gotten in the way of what might be the natural market development of tools
to encourage individual investor voting, Ms. Fisch said. “When the voting
platforms and proxy advisers work with institutional investors, they provide
tools for categorizing issues and proposals to accommodate investor voting
preferences even though the issues might differ a little,” she added. “I would
envision a platform being able to provide retail investors that same sort of
Ms. Fisch and
others are convinced that individual investors are interested in the makeup of
corporate boards, executive pay and other governance matters. Given that
technology can lower the hurdles these shareholders face in expressing their
views, it seems unfair to ignore it.
A version of this article appears in print on October 8, 2017, on Page
BU1 of the New York edition with the headline: Small Investors Support
Boards, But Few Vote.
© 2017 The
New York Times Company