In September the Securities and Exchange Commission proposed to rescind Rule 14a-8, which requires companies to put qualifying shareholder proposals in their proxy materials. Prominent scholars have urged the Commission to withdraw the proposal, criticizing mostly the SEC’s legal rationale, but also calling shareholder approval of proposals on majority voting and classified boards evidence of the value of letting shareholders communicate through proxy statements and votes on “matters of common interest.”
Yet a useful truism is that something is worth what another person is willing to pay for it. To learn the value of a vote, we have to determine what shareholders are willing to pay for it. In a new article, I argue that the market’s answer is: very little.
Investors now buy stock with less voting power, or none, as a matter of course. By Jay Ritter’s count, companies went public with two classes of common stock, one carrying weaker voting rights than the other, in 37 of 90 initial public offerings in 2025, or 41.1 percent, the highest rate in the 46 years he has tracked. Buyers pay little extra for the class with greater voting power. Masulis, Wang and Xie found that at American dual-class companies, the class with greater power trades at an average premium of 3.6 percent, with a median of 2.4 percent. Dyck and Zingales estimate that a controller of an American company can take for itself 3 percent of equity value or less. The two figures are about the same size, which suggests that buyers pay for the chance to sell their votes in a fight for control and pay almost nothing for a say on routine matters.
Here is the odd part: No rule requires an investment adviser to vote every proxy. The Commission said so in 2003, when it wrote that it did “not suggest that an adviser that fails to vote every proxy would necessarily violate its fiduciary obligations.” Yet in January, Brian Daly, the director of the Commission’s Division of Investment Management, observed that advisers’ voting policies “now almost universally reflect the coupled mantras of ‘votes have value’ and ‘we will vote all proxies.’” So fund managers vote on everything, and they have little reason to study any of it. An index fund manager keeps about 12 basis points of any gain its governance work produces, but it bears the whole cost of the work. Of course it buys a recommendation, and many managers simply follow it. Iliev and Lowry found that over a quarter of the mutual funds they studied voted with ISS every time it opposed management, at every company they held, in every year they examined. That isn’t a vote. It’s a subscription. And it moves outcomes: Malenko and Shen found that ISS alone dictates about a quarter of the votes.
So what does a count of those ballots measure? Mostly, it measures how proxy advisers set their policies. It does not measure what shareholders think. When shareholders study a proposal on their own, their mistakes tend to cancel out, and the count pools what each of them learned. When many funds follow one recommendation, the count repeats one analysis many times over, and the shareholders who did their homework become less likely to decide the outcome. Everyone pays for that. Only shareholders can vote, and every shareholder lives with the result. A fund that casts an unstudied ballot spends its clients’ money to make the decision worse for everyone else in the company. For that fund, the routine vote doesn’t just have little value. It has negative value.
If shareholders don’t value these voting rights, who does? Not takeover activists. They don’t need Rule 14a-8, because they nominate their own directors and pay for their own proxy fights. The people who value these ballots are the people who file the proposals. Kastiel and Nili have shown that individual “gadfly” proponents file many of the proposals that win majority support. Rule 14a-8 lets a proponent with a tiny stake put a question into the company’s own proxy statement and have it voted on by fund managers who will cast their ballots whether or not anyone studies the question. That is a good deal for the proponent. No evidence shows that it is a good deal for the shareholders who cast the ballots.
The scholars’ own statement shows where the valuable votes are. If Rule 14a-8 goes, they write, shareholders will turn to “proxy fights, coalitions with hedge fund activists, withhold-vote campaigns, negative votes on management proposals, shareholder-sponsored binding bylaw amendments, and lawsuits.” Nearly every item on that list is a contest or a binding act, which is exactly where an informed vote can change an outcome. And those votes are worth something. Cuñat, Giné and Guadalupe compared governance proposals that passed or failed by small margins and found that a proposal that narrowly passed produced an abnormal stock return of 1.3 percent on the day of the vote, compared with one that narrowly failed. Close votes carry information. A ballot cast by formula on a matter nobody contests does not.
So protect the contested vote, and let fund managers drop the rest openly. The Commission and the Labor Department should treat an adviser as having met its fiduciary duty on routine matters if it publishes a written policy naming the kinds of matters it will not vote on, such as uncontested director elections and precatory proposals that drew little support, and if it returns a proxy for every meeting but marks no vote on those items. The adviser’s shares would still count toward the quorum, but they would count neither for nor against the routine item. Contested and fundamental matters would remain subject to the duty, whatever the policy says. I would count a matter as contested if someone has nominated a rival slate or announced a campaign against a director, if the company’s last advisory vote on pay failed, or if a shareholder proposal drew more than a stated level of support, say 20 percent, at its last vote. A merger, a charter amendment, or a vote on a deal with a controlling shareholder is fundamental.
Why do regulators need to say this? Because no fund wants to be the first to stop voting and be accused of neglecting its clients. That is the lockstep problem again. If regulators bless the choice in advance, every fund can make it at once.
In addition, rescinding Rule 14a-8 would not silence anyone. Repeal ends a federal mandate, but it does not ban nonbinding proposals. A shareholder can still offer a proposal at an annual meeting, and states can still require companies to put proposals in their proxy statements. And no federal rule forbids a company from giving its shareholders more rights than Rule 14a-8 does. The Commission’s proposing release says companies may “expand, limit, or eliminate” procedures for shareholder action in their governing documents, and it asks how many would keep including proposals voluntarily. Delaware law already lets a company’s bylaws require it to put stockholders’ director nominees in its proxy materials. Companies just wouldn’t have to. Texas, for example, doesn’t require companies to take proposals at all. A 2025 Texas law instead lets certain listed companies opt in to thresholds a proponent must meet, such as holding $1 million in stock or 3 percent of the voting shares.
My proposal keeps every contested and fundamental vote in the hands of shareholders. What it takes away is the ballot cast by formula on a question nobody studied. A fund manager that declines that ballot, and says so in a published policy, has told its clients where its judgment ends. Whatever the Commission decides about Rule 14a-8, a lot of voting should stop passing for proof that voting is worth a lot.
Seth C. Oranburg is a professor at The Catholic University of America’s Columbus School of Law. This post is based on his recent article, “Silent Shares: What If Shareholder Democracy Has Negative Value?” available here.