There has never been more interest in restraining proxy advisors. President Trump has issued an executive order devoted to “[p]rotecting American [i]nvestors” from them. Elon Musk has called them “corporate terrorists.” Two House committees are investigating them. The SEC has adopted two sweeping, and entirely conflicting, regulatory regimes, now subject to clashing rulings from three circuit courts. Texas has passed a law that could expose proxy advisors to a wave of lawsuits, and at least thirteen other states have proposed similar legislation.

Yet many of the proposals advanced in this debate rest on flawed economic foundations. In a new article, Other People’s Votes, we offer an economic roadmap for understanding proxy advice and its role in shareholder voting, in the hope that policymakers will target legitimate sources of concern rather than continue to propose counterproductive fixes.

Institutional investors vote on consequential questions: who sits on the board, whether executive pay is excessive, whether a merger should proceed. They must do so across tens of thousands of proposals each season. But the incentive structure of shareholder voting systematically discourages informed participation. An investor who becomes informed bears concentrated costs, while the benefits of any individual vote are diffuse, probabilistic, and shared pro rata with everyone else. The predictable result is free-riding and underinvestment in monitoring.

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