A while back, I posted about what was then the new voting choice programs being adopted at large mutual fund complexes, giving retail shareholders the right to choose voting policies that would apply to their pro rata share of fund ownership.

Well, Alon Brav, Tao Li, Dorothy S. Lund, and Zikui Pan have a new paper out, The Proxy Voting Choice Revolution, that dissects the early results for Vanguard’s funds, and what is actually the thing that stands out to me is not what the choices reveal about retail shareholders, but what they reveal about proxy advisors.

The thing is, proxy advisors have a benchmark policy of standard voting recommendations, and they have custom policies that can be tailored to the needs of their individual clients, and they also have “themed” policies which are somewhere in between – “off the rack” so a client doesn’t have to pay for tailoring, but specialized beyond the basic policy.  Except we don’t have a lot of insight into exactly how ballots are cast for these themed policies – until, apparently, now.

The authors are able to use the data from Vanguard to infer how Glass Lewis’s ESG themed voting policy worked in practice.  So, for example, GL’s ESG policy rejected auditor ratification at a very high rate, apparently because the policy frowns on prolonged auditor-client relationships.  More generally, though, the authors find that a number of the ESG-themed votes cannot be explained by the ESG voting policy as described in Glass Lewis’s materials.  (They’re not, I take it, singling out Glass Lewis or ESG themed policies as a particular problem; it’s just, this was where they could spot differences.  They point out, for example, that Egan-Jones has a “wealth focused” voting policy which apparently is defined mainly by opposition to DEI and ESG, which, among other things, may not be what retail investors expect.)

Anyway, this highlights one of the issues that will arise going forward if retail shareholders are expected to choose policies – we’re going to need better explanations of what that exactly they will entail; retail, unlike institutional clients, can’t discuss the matter directly with proxy advisor reps. 

But there’s more! The authors note that though there has been little uptake for Vanguard’s voting choice program so far, of those who do participate, most have chosen the “vote with management always” policy.  I don’t know if that tells us what’s likely to happen as the program expands – the early adopters may differ systematically from those who have to be coaxed into making a selection – but it does perhaps? Provide some insight into another retail voting program, which is, the one recently adopted by Exxon.

As most readers probably know, Exxon recently got SEC approval to allow its retail shareholders – direct holders, not through funds – to choose to adopt standing voting instructions that will have them always vote with management unless they later opt out (of the program entirely, or for a particular shareholder meeting).  Law firms have since been jumping to issue memos to clients recommending that they consider adopting similar programs. One big question mark is whether retail shareholders will have much appetite for the program; the Vanguard data, anyway, suggests there may very well be some.

And another thing.  On this week’s Shareholder Primacy podcast, Mike Levin and I talk about – what else! – the Exxon program, as well as the new proposal to eliminate quarterly earnings reports.  Here at Apple, here at Spotify, and here at YouTube.