NCPA - National Center for Policy Analysis

Confidential Voting Doesn't Matter

March 11, 2003

Many proponents of corporate reform argue that board votes should be confidential. The rationale is that shareholders with conflicts of interest will not feel constrained to vote with management if it cannot be determine how they voted. A new study by the National Bureau of Economic Research finds that this is not the case.

The author studies the impact of the adoption of confidential voting on 130 corporations from 1986 to 1998. She finds:

  • The adoption of confidential voting procedures had not significant impact on subsequent voting outcomes.
  • Support for shareholder proposals did not increase, nor did support for management proposal decrease.
  • Specifically, she finds that financial institutions, who have large conflicts of interest, do not change their level of support for management proposals.
  • Additionally, confidential voting does not affect stock value.

This may explain why many firms voluntarily adopt the procedure. Since it costs nothing and does not change the outcomes of votes, it is an easy way to win public relations points.

Source: Les Picker, "Does Confidential Proxy Voting Matter," NBER Digest, January 2003; based on: Roberta Romano, "Does Confidential Proxy Voting Matter?" National Bureau of Economic Research, Working Paper No. 9126, August 2002.

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