Exposure to disengaged retail voters

I examine how exposure to retail investors who do not participate in shareholder voting affects firms’ governance activities. This issue is important because most retail investors do not participate in voting due to the time, effort, and opportunity costs of voting. My analyses leverage decisions by Charles Schwab and TD Ameritrade to discontinue voting for routine proposals on behalf of retail investors who do not submit voting instructions. For firms in the top quartile of retail ownership, these decisions reduce the proportion of shares represented at shareholder meetings by 12.6%. This decline makes it more difficult for firms to achieve quorum and pass stock-related routine proposals. In response, firms attempt to increase retail investor voting participation by reducing processing costs associated with voting information. Firms with the strongest incentives to increase retail investor participation experience voting outcomes that diverge from management recommendations. Firm responses to the brokerages’ discontinuations vary based on financial constraints and monitoring quality, with some implementing governance mechanisms that increase management control over voting outcomes. My results highlight the challenges and costs associated with firm exposure to retail investors’ voting behaviors and are particularly relevant as such exposure is expected to increase.