Discussion of Bach-Metzger: Are shareholder votes rigged Discussion of Bach-Metzger: Are shareholder votes rigged? Mannheim, August 2017 Moqi Groen-Xu, LSE

German dialectics Thesis Antithesis Synthesis

Thesis (the paper) SH votes are rigged Management holds extraordinary power over the voting process (11% of how many?) Corporate elections should be a fair process and not rigged How? More systematic bias when turnout is high Management acquires additional voting rights by themselves (option exercising) When? Likelihood higher if greater potential to lead to change in corporate governance provisions Proposals supported by proxy advisors Model How to make the process more competitive, less prone to manipulation Signal → can bias results

Antithesis (1/2) Normal campaigning vs. “rigging” “Rigged” “Power” Not many contested proposals – little power over others? What is the counterfactual? “Fair process needed” Isn’t higher turnout “fairer”? What is fair? “Turnout is high” Contested proposals: turnout is also higher because the likelihood for be pivotal is higher Why are these proposals close to begin with? Shareholders are “biased” towards management because they chose to hold the shares

Antithesis (2/2) “Change in corp. gov. provisions” Which firms are more likely to implement vote outcomes? Perhaps where it is easier? “Proxy advisors” Proxy advisor agreement does not necessarily imply more valuable proposals. First line of defence: change mind of proxy advisor. If not possible, campaigning as last line of defence “Option exercising” Even management is free to sell shares if it is their property, especially at a personal cost “Process more com-petitive ” Misfit with empirics: Signal was not observable to either side before 2013

Synthesis (1/3) Distribution of votes has abnormal mass around 50% Looks like managerial campaigning is more successful How much? Good or bad?

Synthesis (2/3) Distribution of votes has abnormal mass around 50% Looks like managerial campaigning is more successful How much? We don’t observe actual distribution of preferences although your model can help estimating Magnitudes Counterfactuals Costs of campaigning for different sponsors Role of access to preliminary data Good or bad?

Synthesis (3/3) Distribution of votes has abnormal mass around 50% Looks like managerial campaigning is more successful How much? Good or bad? Look at returns (also can contribute to RDD literature) Types of proposals Long-run and spillover turnout effects ISS recommendations when they have incentives to be biased Presence of cross-owners/owners of competitors Boilerplate proposals Proposals usually supported by SH by larger margin

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