Why the proxy-voting process is an important channel for corporate governance
Fresh research into the role of institutional investors in voting indicates that corporate governance is important to them and that the proxy voting process is an important channel for corporate governance.
However, the research recommends that policy-makers should address several issues related to proxy voting, including the importance of investors being aware of they are being asked to vote for, so that they can decide to lend their shares or not.
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Dr Pedro Saffi, University Lecturer in Finance at Cambridge Judge Business School, is a co-author of the report that relies on material drawn from the securities lending market. He feels the time is now appropriate for greater transparency that, in itself, will create a market which is ‘more efficient and fair to everyone’.
“Often when people have to decide whether they are willing to vote – the record date – they have no idea what the vote is for. Our suggestion is that shareholders’ understanding should be greatly improved so that they can decide whether to vote or not.
“Transparency is key. Investors should be made aware that while they are making money by lending their shares to someone, they could be missing the opportunity to vote in a big corporate event. As long as this is clearly stated there is nothing wrong with it and people can make up their minds about whether it’s best for them or not.”
Dr Saffi is a Lecturer in Finance at Cambridge Judge Business School and produced the paper ‘The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market’ with colleagues from the McDonough School of Business, Georgetown University, USA.