Rose: Shareholder Proposals in the Market for Corporate Influence

I recently uploaded a draft article on shareholder proposals to SSRN.  It is a relatively early-stage draft, so comments would be very welcome.  Here is the abstract:

The period from 2003 to 2012 shows a remarkable shift in the use and effectiveness of shareholder proposals. Shareholders pursued many different types of proposals over the decade, eight of which are identified in this article as most important to corporate governance. The article then provides evidence on how these proposals were used and voted on by shareholders, helping to provide clarity to the role of shareholders in corporate governance. The evidence presented in this article shows that shareholders are increasingly willing to pursue proposals which enhance the accountability of managers. Reflecting legitimate concerns with the risk of empowering minority shareholders who do not owe fiduciary duties to their fellow shareholders, voting patterns reveal that shareholders are cautious in how they allocate power. While most shareholders support measures that facilitate managerial discipline, they are more cautious in their support of proposals that empower other investors and augment their influence over managers.
This article develops a theory of shareholder voting by suggesting that this behavior reflects shareholder concern over two types of costs. First, the majority of shareholders operate under information cost constraints as diversified investors that generally have significant informational asymmetries with respect to management. Therefore, such shareholders will tend to seek low-cost signals of firm performance, which would predict support for disciplining proposals that allow shareholders to key off basic financial performance measures such as market price; indeed, as other scholars have noted, the majority of shareholders are most interested in defensive, ex-post activism that reduces managerial entrenchment and exposes managers to the market for corporate influence and corporate control.
Second, the significantly lower levels of support for empowering proposals may be explained by common agency costs — costs that arise as numerous shareholder-principals seek to influence a single set of manager-agents. The significant empowering proposals identified in the article have a common feature: they all promote shareholder influence in excess of a commensurate economic interest held by the activist shareholder. This raises concerns that activist shareholders will attempt to use their influence to extract private benefits at the expense of the other shareholder-principals. However, most shareholders appear to recognize the threat presented by a common agency in which small block holders are empowered to influence management, and vote accordingly.
Available for download here.