Institutional Investors and Proxy Voting: The Impact of the 2003 Mutual Fund Voting Disclosure Regulation

This paper examines the impact on shareholder voting of the mutual fund voting disclosure regulation adopted by the SEC in 2003, using a paired sample of proposals submitted before and after the rule change. We focus on how voting outcomes relate to institutional ownership and the voting behavior of mutual funds. While voting support for management has decreased over time, there is no evidence that mutual funds' support for management declined after the rule change, as expected by advocates of disclosure. In fact, in the context of management-sponsored proposals on executive equity incentive compensation plans, mutual funds appear to have increased their support for management after the rule change. We also find that this result is not due to changes in compensation plan features, nor that voting outcomes were plausibly related to broker voting, which was eliminated in a parallel 2003 stock exchange rule change. Finally, there is some evidence that firms with greater mutual fund ownership adopt a higher frequency of sponsoring executive equity incentive compensation plans, which could partly explain our findings.