[maest]

You're right - index funds voting really hurts the process, largely because index funds don't ask their investor base how they should vote. Instead, they default to following corporate recommendations and voting down any shareholder proposals.

So really, all those shares are voted according to what corporate management wants, not to what the original retail investors want. It's distorting the power balance in a really perverse way.

It's hard to say at the moment, because the data isn't available yet, but I bet index funds voted >95% against this proposal - that's the historical average. We'll know for sure what the stats are once the fund providers disclose their voting, which happens yearly.

[mushufasa]

As you said, there's literally no formal process for retail investors to communicate to the funds.

This startup organizes retail shareholders to use their rights via petition, e.g. https://www.yourstake.org/ask/vanguard-demand-companies-disc... .

So as a verified shareholder, you can signal your support for various issues, and the startup then arranges a meeting with the fund managers if enough people support the idea.

[devit]

Why do they do that instead of abstaining?

It seems like their duty to the index fund owners is to vote like other shareholders (which is most easily achieved by abstaining) and not like management.

[maest]

They legally have to vote their shares.

Individuals are exempt for that.

It's interesting to think about index fund providers incentives:

(1) track the market (2) do it very cheaply

Voting shares is a cost center with no benefit towards the business. Fund providers don't want to spend time and money to do research on individual proposals, that would be too expensive. So they do the cheapest thing possible and default to following corporate recs.

(That's actually a simplification, what happens in practice is, they use third party proxy voting advisors, but the end results is mostly the same, except that they vote down really egregious proposals, e.g. crazy CEO pay in the context of a free falling share price)

[mushufasa]

Why not simply allow their beneficial owners to vote on what they should do?

I've building a startup for that -- you can support petitions like https://www.yourstake.org/ask/vanguard-demand-companies-disc...

[mikeash]

Can they vote half of their shares yes and half no?

[AnthonyMouse]

> Why do they do that instead of abstaining?

Suppose index funds collectively own 80% of the shares. If they don't vote or do something that causes their vote to equal the other shareholders, someone else can buy 10% of the shares and effectively have majority voting power, or even fewer than that since most likely some of the other non-index fund owners wouldn't vote either.

The problem is that you need somebody who is paying attention to be in control of the company. Putting that on management is problematic because they obviously have different interest than owners, e.g. on matters of executive compensation or whether to return profits to shareholders instead of using them to build a personal empire/reputation or funneling money to cronies through mergers and acquisitions.

[mikeash]

Index funds are passive by design. In your scenario, allowing 10% ownership to exert control seems like it’s functioning as it should. The alternative is that control is held by the advisor that the index fund listens to.

[vonmoltke]

> Suppose index funds collectively own 80% of the shares. If they don't vote or do something that causes their vote to equal the other shareholders, someone else can buy 10% of the shares and effectively have majority voting power, or even fewer than that since most likely some of the other non-index fund owners wouldn't vote either.

Instead, they vote the board recommendations, disenfranchise all the individual shareholders, and rubber stamp almost anything the board wants. I'm not sure that's any better.

[froindt]

How does abstaining count towards having quorum? Does it count equal to other votes?