A paper tiger? An empirical analysis of majority voting

Abstract

Majority voting in board elections has emerged as a dominant theme in recent proxy seasons. Analysis of majority voting is important: first, the impact is controversial yet scant empirical evidence exists. Second, Congress is still considering mandating this practice. Third, there has been a tectonic shift in adoptions of majority voting, from 16% to over 67% of S&P 500 firms in just two years. Fourth, the vast majority of shareholder proposals for majority voting are sponsored by unions with little shareholdings. Proponents argue that majority voting aligns shareholder-director interests. Opponents argue that the practice will be disruptive and could result in the failure of boards to meet exchange and SEC requirements. Others assert that majority voting is a paper tiger, amounting to form over substance, particularly since many adoptions are non-binding. We provide an empirical analysis of the wealth effects, characteristics, and efficacy of majority voting. Our results are consistent with the paper tiger hypothesis. © 2013 Elsevier B.V.