When institutional investors cast their votes against company directors, they increasingly do something that was once rare: they explain why. These “voting rationales” — brief written explanations accompanying dissenting votes — are emerging as a surprisingly effective tool for driving corporate governance reform, according to new research analyzing nearly 800,000 such disclosures.
The study, conducted by professors at the University of Hong Kong, University of Bristol, and University of Toronto, reveals how a simple transparency mechanism is reshaping boardrooms across the globe. By analyzing voting patterns from 273 institutional investors managing over $37 trillion in assets between 2014 and 2022, the research demonstrates that when investors explain their opposition, companies listen — and change.
The Rise of Transparent Dissent
Voting rationales represent a fundamental shift in how institutional investors engage with companies. Historically, shareholders could vote for or against directors, but their reasoning remained opaque. Now, a growing number of investors voluntarily disclose why they oppose certain nominees, creating a direct communication channel between asset managers and corporate boards.
The numbers tell a compelling story. While investors provide rationales for only 1.7% of their supportive votes, they explain their opposition 14.5% of the time. This disparity suggests that rationales serve primarily as warning signals, flagging specific governance concerns that demand attention.
The practice is becoming widespread across markets. Some 84% of companies in the study received at least one voting rationale during the research period, indicating that this form of engagement extends far beyond a handful of activist investors to encompass mainstream institutional shareholders.
Independence and Diversity Drive Opposition
The research reveals clear patterns in what troubles institutional investors most. Lack of board independence tops the list, cited in 21% of all rationales for voting against directors. This finding reinforces decades of corporate governance research emphasizing the importance of independent oversight of management.
Board diversity emerges as the second-most common concern, appearing in nearly 18% of rationales. Notably, diversity concerns were prominent even before major asset managers like BlackRock and State Street launched high-profile campaigns on the issue in 2017, suggesting grassroots investor concern preceded the headline-grabbing initiatives.
Other frequent rationales include concerns about director tenure, board busyness (directors serving on too many boards simultaneously), and issues around CEO-chairman duality. Interestingly, rationales rarely mention directors’ advisory or monitoring roles , the core functions of board service , nor do they mention valuation, the most important outcome of board’s actions, suggesting investors focus more on structural governance issues than operational oversight.
Genuine Governance Concerns
The research demonstrates that voting rationales reflect authentic investor concerns rather than superficial posturing. There is strong alignment between the rationales investors provide and companies’ actual board characteristics. Firms receiving diversity-related rationales typically have less diverse boards, while those flagged for tenure concerns feature directors with longer service periods. This correlation indicates investors are identifying genuine governance problems rather than engaging in “rationale washing.”
Additionally, analysis of proxy advisor recommendations reveals that advisors like Institutional Shareholder Services (ISS) and Glass Lewis differ in the relative importance they assign to various governance issues compared to institutional investors’ rationales, suggesting many institutional investors exercise independent judgment in their voting decisions.
Corporate Response and Market Impact
Importantly, the research demonstrates that voting rationales drive real corporate change. Companies receiving high dissent accompanied by specific rationales are significantly more likely to address the flagged concerns in the following year. For example, firms criticized for lack of board diversity increased female representation, while those flagged for tenure or busyness issues made corresponding adjustments.
The feedback loop appears to work both ways. Companies that respond to rationale-flagged concerns see reduced dissenting votes in subsequent years, suggesting that addressing investor concerns improves shareholder support. This dynamic creates a powerful incentive for boards to take voting rationales seriously.
Crucially, the research shows that dissent alone is insufficient to drive change — companies respond in a more pronounced way when explicit rationales accompany high opposition votes. This finding underscores the unique value of explained dissent over silent opposition.
A Low-Cost Governance Tool
The implications extend beyond individual companies to the broader corporate governance ecosystem. Voting rationales offer institutional investors a cost-effective way to engage with portfolio companies, particularly important for asset managers holding stakes across thousands of firms. Traditional engagement through direct dialogue requires significant resources and may not be feasible for smaller holdings, or for institutions who hold 100s or 1,000s of different firms.
The transparency inherent in public rationales also creates market-wide benefits. Other investors can observe which governance issues their peers prioritize, potentially influencing broader voting patterns. Companies can benchmark their governance practices against the concerns raised at similar firms, enabling proactive improvements.
Future of Shareholder Engagement
The research suggests voting rationales represent just the beginning of a broader trend toward transparency in institutional investor decision-making. As asset managers face increasing pressure to demonstrate active stewardship of client capital, explained voting may become standard practice rather than voluntary disclosure.
The findings also highlight potential areas for further development. While rationales for votes against directors are detailed and substantive, explanations for supportive votes remain generic and uninformative. Greater transparency around positive governance features could provide companies with clearer guidance on best practices.
Conclusion
The emergence of voting rationales marks a significant evolution in corporate governance. By providing a simple, transparent mechanism for communicating shareholder priorities, these explanations are proving more influential than their modest format might suggest. Companies are listening, boards are changing, and investors are finding their voice in corporate governance debates.
As institutional ownership continues to concentrate and stewardship expectations rise, voting rationales offer a scalable solution to the challenge of meaningful shareholder engagement. The research demonstrates that sometimes the most powerful corporate governance tool is not a complex regulation or costly intervention, but simply explaining why you said no.
For companies, the message is clear: in an era of transparent investing, every vote tells a story — and boards ignore those stories at their peril.
Academic paper: Voting Rationales
Professor Roni Michaely
University of Hong Kong
Professor Silvina Rubio
University of Bristol
Professor Irene Yi
University of Toronto
