Exploiting within-proposal and within-institution variation, we show that an institution’s holdings in peer firms are positively associated with the likelihood that the institution votes against management on shareholder-sponsored governance proposals. We further find that high aggregate cross-ownership positively predicts management losing a vote. Overall, our results provide evidence that cross-ownership incentivizes institutional investors to play a more active monitoring role, suggesting that institutional cross-ownership serves as a market-based mechanism to alleviate the inefficiency induced by governance externalities.
UK proposal rules are more onerous on proposal sponsors but UK proposals seem to be a more powerful governance device than US counterparts since they are binding and UK shareholders have the statutory right to call special meetings and elect directors. We observe most UK proposals are presented at special meetings and target board election. Institutions are the most active sponsor of UK proposals. As US proxy rules emphasize shareholder participation and protection rather than empowerment, there are a significantly greater number of shareholder proposals initiated in the US during the sample period, and small shareholders and social proposals dominate the proposing scene of the US.
Management recommendation for a particular frequency is associated with a 26% increase in voting support for that frequency. Management influence varies across firms and is smaller at firms where perceived management credibility is lower. Compared to firms adopting an annual frequency, firms following management’s recommendation to adopt a triennial frequency are significantly less likely to change their compensation practices in response to an adverse say on pay vote, consistent with the notion that a less frequent vote results in lower management accountability.