The Costs and Benefits of Shareholder Democracy: Gadflies and Low-Cost Activism

We show that there is cross-sectional variation in the quality of shareholder proposals. On average, the proposals submitted by the most active individual sponsors are less likely to be supported by a majority of votes, but they occasionally pass if shareholders mistakenly support them and may even be implemented due to directors’ career concerns. While Gadflies’ proposals destroy shareholder value if they pass, shareholder proposals on average are value-enhancing in firms with more informed shareholders. We conclude that more informed voting could increase the benefits associated with shareholder proposals.