Hidden Agendas in Shareholder Voting

Nothing in either corporate or securities law requires companies to notify investors what they will be voting on before the record date for a shareholder meeting. We show that, overwhelmingly, they do not. The result is “hidden agendas”: for 88% of shareholder votes, investors cannot find out what they will be voting on before the record date. This poses an especially serious problem for investors who engage in securities lending: they must decide whether the expected benefit of voting exceeds the expected benefit of continuing to lend their shares (or making them available for lending) without knowing what they will be voting on. All investors who engage in share lending are affected, but the problem is particularly acute for large investment managers that have fiduciary duties related to voting. At present, they must discharge these duties in the dark.

We propose a straightforward solution: an amendment to the Securities and Exchange Commission’s proxy rules requiring public companies to file proxy statements at least five days before the record date for the meeting. This simple change would give investors the information they need to make an informed decision about whether to retain the right to vote or not. If we believe that shareholder voting is important, and that investment managers and others should decide whether to vote, we should give them the information they need to do so.

Replication code for this paper is available on JREG’s Dataverse account.