Decentralizing Voting Power

Summary

Brian Monsen and co‑authors study the effects of shifting proxy voting authority away from a central stewardship group to external investment advisers, using a 2019 Vanguard policy change as a natural experiment. Vanguard moved voting authority for 31% of its equity funds to external advisers while keeping managers and strategies the same, leaving 69% under the stewardship group as a benchmark. The paper finds decentralised voters are materially more likely to oppose management—especially on shareholder‑sponsored and ESG proposals—and do not, on average, simply defer to proxy‑advisor recommendations.

Key Points

In 2019 Vanguard shifted voting authority for 31% of its equity funds from its stewardship group to external investment advisers, creating a within‑firm comparison.
Decentralised voters are significantly more likely to vote against management: they are 21.5% more likely to oppose management on shareholder proposals versus Vanguard’s stewardship group.
The largest differential is on shareholder ESG proposals, where decentralised voters show greater support than the stewardship group.
Only about 15% of decentralised voters appear to fully outsource voting to proxy advisers; on average they are no more likely than the stewardship group to follow ISS or Glass Lewis.
On “contentious” votes (management vs proxy adviser disagreement), decentralised voters are about 21% less likely to back management, indicating more active monitoring.

Content Summary

The authors exploit Vanguard’s partial decentralisation to hold firm, meeting and proposal constant and isolate how changing who holds proxy voting authority alters outcomes. They document meaningful shifts: decentralised voters oppose management more often across many proposal types, with the strongest effects for shareholder‑sponsored and ESG proposals. The evidence runs counter to claims that large stewardship teams push an ESG agenda against investor preferences—if anything, decentralisation increased ESG support.

The study also examines the role of proxy advisers. While a minority of external advisers lean on proxy‑advisor recommendations, decentralised voters overall do not mechanically follow ISS or Glass Lewis more than Vanguard’s stewardship group. Variation exists: advisers with more concentrated holdings (and thus lower monitoring costs) diverge more from proxy‑advisor guidance.

Results are not unique to Vanguard: prior to the policy change Vanguard and BlackRock had very similar voting records (State Street only marginally different), suggesting findings are informative about broader pass‑through and decentralisation debates.

Context and Relevance

This work arrives as lawmakers and market participants push proposals (for example, the INDEX Act and other pass‑through voting programmes) that would shift voting power to beneficial owners or their advisers. The paper offers early evidence on likely consequences: more oppositional voting against management, greater support for shareholder and ESG proposals, and heterogeneous reliance on proxy advisers depending on investor concentration and monitoring incentives. It’s highly relevant for institutional investors, corporate boards, regulators and policymakers debating pass‑through rules and stewardship structures.

Why should I read this?

Quick version: if you care about how the Big Three and other large fund families vote — and what would happen if voting power is decentralised or passed through — this paper tells you the likely outcomes. Spoiler: decentralisation doesn’t just hand power to proxy advisers or dilute oversight; it tends to produce more independent, often more shareholder‑friendly voting.

Author’s take

Punchy and practical: this isn’t abstract theory — it uses a real Vanguard policy change to show decentralisation changes corporate governance in measurable ways. For anyone tracking ESG, stewardship policy or regulatory reform on pass‑through voting, the details matter. Read the paper if you want the evidence, not just the rhetoric.

Source

Source: https://corpgov.law.harvard.edu/2025/10/01/decentralizing-voting-power/