Understanding Director Elections: Determinants and Consequences

Abstract

We examine the determinants and consequences of voting outcomes in uncontested director elections. Exploiting a unique hand-collected dataset of the rationale behind proxy advisors’ recommendations — the primary driver of voting outcomes —, we document the director and board characteristics that voting shareholders focus on (as well as those that they neglect), their evolution over time and their relative importance. Absent a negative recommendation, high votes withheld are infrequent, highlighting the agenda setting role of proxy advisors. While high votes withheld rarely result in director turnover, our analyses show that firms often respond to an adverse vote by explicitly addressing the underlying concern. Overall, it appears that shareholders use their votes in uncontested director elections to get directors to address specific problems, rather than to vote them on or off the board, but they do so only on matters highlighted by the proxy advisors.