Shareholders Vote More When Their Ownership Stake Is Higher

The higher their ownership stake is in a firm, the more likely it is that shareholders will participate in proxy votes.

Researchers reviewed a sample of U.S. retail (individual investor) shareholder voting records from 2015–2017. Looking at data that are not usually publicly reported, they analyzed annual and special meeting data for 6,782 firms over a three-year period.

Individual shareholders cast 32% of their shares on average, lower than the 80% participation rate by all shareholders, including institutions. Individuals own an average of 26% of shares outstanding, with closer to 38% ownership in the smallest size firms and 16% ownership in the largest size firms. Looking at voter participation rates, the researchers found that these shareholders vote more often when their stake size in a firm is larger; however, in total, only 12% of the average firm’s individual shareholders choose to vote.

Another factor that impacted voting rates was how shareholders received proxy information. Shareholders who choose to receive full packages of proxy materials and individuals whom the firms choose to send these materials to are much more likely to vote overall.

The researchers also found that individual small-firm shareholders are generally less supportive of management proposals than larger-firm shareholders. Across all sizes of firms, individual shareholders with a larger equity stake in general show more support for management proposals than those with a smaller stake.

The researchers concluded that proxy voting among individuals is very different than that of institutional voting, and that “the voting choices of fund managers can be a poor proxy for the choices of their ultimate beneficiaries.”

Source: “Retail Shareholder Participation in the Proxy Process: Monitoring, Engagement, and Voting” by Alon Brav, Matthew Cain, and Jonathan Zytnick; SSRN, May 2019.