Voting Rationales

Why do institutional investors vote the way they vote? Using a novel dataset on the reasoning behind investors’ voting decisions, we provide direct evidence on the main reasons for institutions’ votes in director elections. The main reasons for opposition are independence and diversity. Concerns raised in rationales reflect firms’ governance weaknesses: companies with low board gender diversity receive more rationales on diversity, similar results for independence, tenure, busyness, and CEO duality. Companies listen and address frequently raised concerns. Results reveal institutions cast informed votes, their rationales are well grounded, and can be an effective low-cost strategy to communicate investors’ concerns.