October 6, 2021

A Novel Voting Standard? “Majority of Quality” Shareholders

If, as the IR Magazine/Broadridge survey suggests, people are worried about retail shareholders lacking the knowledge they need to make informed votes, and if people are also worried about index investors being conflicted due to their “universal ownership,” why not… find a way to give more power to your long-term shareholders whose portfolios are more concentrated in your company’s stock? This academic paper from GW Law prof Lawrence Cunningham proposes that important votes be subject to an additional condition: that they be approved by a majority of shares owned by “quality shareholders.”

The “MoQ” model would be “an additional separate vote of those with the longest holding periods and highest concentration.” Here’s more detail from the paper:

MoQ conditions should hold at least some appeal for all constituents—directors, shareholders judges and scholars. By adding a MoQ clause, a board would signal the corporate importance of long-term focused shareholders. Directors have long deployed many tools available to sculpt their shareholder base, from corporate communications to dividend policy. The MoQ adds a powerful new tool to the toolbox. The MoQs strategic and tactical appeal will vary with context, concerning the vote topic, board composition, shareholder makeup, and corporate financial condition.

Some shareholders might balk at first, indexers to guard their influence and transients to protect arbitrage options. But both cohorts still vote in the usual shareholder approvals, retaining power. And if the work of quality shareholders on the MoQ adds value, as fact patterns such as the Dell case suggest it likely would, all other shareholders benefit too. Individuals, still owning at least one-third of all public equity, and lately exerting considerable power, should also welcome the proposal.

Liz Dunshee