The answer may surprise you!
From the abstract:
"Overall, our findings support the argument that existing tools are insufficient to induce pro-shareholder change at highly resistant firms. In fact, firms targeted by vote no campaigns are more likely to add management friendly charter provisions and takeover defenses, suggesting that these firms feel threatened by the campaigns and negative publicity."WOW!
A bit more on the paper:
The basic issue that is investigated is whether no votes that lack a majority matter. The authors find that they do matter, but unfortunately, the votes actually may make things worse!
"in practice shareholders cannot legally remove a director that fails to act in their interests short of waging a costly proxy solicitation contest. Even a majority of shareholders ‘voting against’ a director would not result in his removal from the board because directors almost always run unopposed and only require a plurality of shareholder votes to be elected."So what can shareholders do if the board candidate is running upopposed?
"While shareholders cannot technically vote against a director running unopposed,they do have the ability to withhold their vote from one or more directors up for election, and the right to publicly and privately encourage other shareholders to do the same. Thus, a substantial ‘withheld vote’ in a director election is another mechanism for shareholders to communicate their dissatisfaction. Some argue that a substantial withholding of the vote is enough of a public embarrassment to generate an immediate board response to shareholder concerns, and thus current tools are sufficient. The public spectacle associated with the recent annual meeting at Walt Disney Co is a case in point."However, this paper finds that Disney was the exception and not the rule:
"Overall, our results provide little support that vote no campaigns are motivated by special interests, but do support the argument thatexisting tools are insufficient to induce pro-shareholder change at highly resistant firms."Definitely an interesting finding. While it makes perfect sense, I had hoped that the negative publicity surrounding these events would have been enough of a "kick in the pants" to get boards to watch out for shareholders. Apparently the opposite is true. The "kick in the pants" is just enough to create a bunker mentality where the boards move further from shareholder interests.
Stay tuned, I predict more work in the area. The authors have brought up some interesting questions!
Del Guercio, Diane, Laura Wallis, and Tracie Woidtke. Do Board Members Pay Attention When Institutional Investors 'Just Vote No'?, (2005) FMA paper.