A group of academics studied a comprehensive sample of proxy contests and mutual fund voting records from 2008 and 2015 to analyze the funds’ voting patterns in proxy contests, among other things. The authors present several findings, including that passively-managed funds are less likely to vote for a dissident shareholder. The authors say this is the first study reporting direct evidence that passive funds are more “friendly” towards management than actively-managed funds, reasoning that unlike actively-managed funds, passive funds are not rewarded by “beating the index” but instead, they are usually rewarded by low expense ratios and small tracking errors. The study also found that an endorsement from a proxy advisory firm like ISS or Glass Lewis is an important predictor for votes in favor of a dissident shareholder. Specifically, when ISS issues a “For” recommendation for a dissident, mutual funds’ support rate is 57.5%, compared with a support rate of 17.8% when ISS releases an “Against” recommendation. Other findings from the study:
- Mutual funds are more likely to support a dissident when the target firm experiences poor recent stock price or accounting performance.
- Smaller fund families that lack resources to conduct independent proxy research are most responsive to proxy advisors’ recommendations.
- Mutual funds are 11.9 percentage points more likely to vote for hedge fund dissidents than other types of dissidents, all else being equal, consistent with the notion that investors believe that hedge funds are an effective force of governance.