Universal Proxies

Contested director elections are a central feature of the corporate landscape and underlie shareholder activism. Rules governing proxy voting by shareholders prevent shareholders from “mixing and matching” among nominees from the two sides of contests. This Article’s analysis shows that these proxy voting rules can lead to distorted proxy contest outcomes: different directors being elected than if shareholders had been able to vote how they wished. These distortions are likely to have significant consequences for the affected companies and ex ante consequences for many more companies.

Changes to corporate voting rules are currently the subject of an important policy debate. The Securities and Exchange Commission (SEC) has proposed a universal proxy regulation, which would allow shareholders to vote for their preferred mix of nominees, and would eliminate distortions in proxy contest outcomes. But the rule has been met with substantial opposition. This Article provides the first empirical analysis of the extent of distortions, and the likely effects of universal proxies.

The Article’s empirical analysis uses a comprehensive and largely handcollected data set. It demonstrates that distorted proxy contest outcomes are a real and practical problem. As many as 15% of proxy contests between 2001 and 2016 may have had distorted outcomes. Contrary to the claims of most commentators, there is no empirical evidence that universal proxies would favor special interests or lead to more frequent proxy contests. The Article analyzes how the SEC should implement universal proxies and explains that a rule permitting corporations to opt out of universal proxies would be superior to the SEC’s proposed regulation, which would require all corporations to use universal proxies. If the SEC chooses not to implement a universal proxy regulation, the Article explains how investors could implement universal proxies through private ordering to adopt “nominee consent policies.”