Power to the People : Voting Behavior at Shareholders' Meeting — An Experimental Study

Voting in shareholder meetings has become a popular mechanism of corporate governance throughout the world, and shareholders' main tool for communicating with the company's management. A variety of factors have been shown in the behavioral economic literature to affect voters' behavior, including outcome preferences, other voters' position (peer effect), non-consequentialist elements such as social norms or inequality aversion, and self-interest. It is argued here that voters' behavior may also be affected by their probability to determine the outcome (henceforth, “voting power”). The effect of voting power on voting behavior is examined in an experimental study that controls for several motivations that have been demonstrated previously to impact voting. The participants' power to affect the outcome was manipulated exogenously. Findings suggest that voting power nudged participants to oppose management and to choose the “right” alternative, that is, to vote against a proposal which does not serve the company's best interest. This effect emerged even when participants' vote was in opposition to all their peers and to their own self-interest. The results might allow for some optimism regarding recent regulatory changes in Israel that reallocated voting power among shareholders