Standing Voting Instructions: Empowering the Excluded Retail Investor

By Jill E. Fisch. Full text here.

Despite the increasing importance of shareholder voting, regulators have paid little attention to the rights of retail investors who own approximately thirty percent of publicly traded companies but who vote less than thirty percent of their shares. A substantial factor contributing to this low turnout is the antiquated mechanism by which retail investors vote. The federal proxy voting rules place primary responsibility for facilitating retail voting in the hands of custodial brokers who have limited incentives to develop workable procedures, and current regulatory restrictions impede market-based innovations that incorporate technological innovations.

One of the most promising of such innovations is standing voting instructions (SVI). SVI allows investors to designate their voting preferences in advance of shareholders’ meetings and have their shares voted in accordance with those preferences. Although SVI is readily available to institutional investors, the federal proxy rules prevent its use by retail investors, and proposals seeking modifications of these rules have languished before the Securities & Exchange Commission (SEC) for years. The SEC’s primary rationale for failing to act is the concern that SVI will lead to uninformed voting.

This Article addresses and rejects the claim that the risk of uninformed voting justifies the SEC’s failure to remove the regulatory obstacles to SVI. Current technology is consistent with the creation of voting platforms that allow retail investors meaningful participation in the voting process while retaining appropriate safeguards to minimize the potential for adverse effects. Ironically, the implementation of voting platforms allowing SVI has the potential to make retail investor voting both more efficient and better informed and to increase the legitimacy of corporate democracy.