Scott Hirst is a Lecturer on Law at Harvard Law School and Associate Director of the Harvard Law School Program on Corporate Governance. This post is based on a recent paper by Dr. Hirst, which was also described in a recent Wall Street Journal article.
The Securities and Exchange Commission is expected to soon propose a rule regarding universal proxies. At the urging of investors groups, SEC Chair Mary Jo White has made a universal proxy rule an objective of her tenure. But a rider to a spending bill passed by the House and pending in the Senate intends to prevent a universal proxy rule, on the basis that it might increase the frequency of proxy fights and empower special interests. The debate between these positions has so far proceeded despite a dearth of evidence.
In my paper, Universal Proxies, which was described in a recent Wall Street Journal article, I provide the first economic and empirical analysis of universal proxies. I show that the current system, whereby shareholders vote by unilateral proxies, can create distortions which disenfranchise shareholders. 22% of proxy contests at large U.S. corporations between 2008 and 2015 may have had distorted outcomes that could be prevented by a universal proxy rule. Contrary to concerns raised by its opponents, a universal proxy rule is unlikely to lead to more proxy contests, or to greater success for special interest groups. The significant benefits of universal proxies in eliminating distorted proxy contests outweigh these perceived costs, and would enfranchise shareholders.
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