The Changing Landscape of Corporate Governance Disclosure : Impact on Shareholder Voting

While mutual funds are required to vote on directors in every portfolio firm every year, many funds satisfy this requirement by following the recommendations of proxy advisory service companies such as ISS. However, companies complain that ISS employs one-size-fits-all policies, which do not consider firm-specific governance demands. A rational response to such frictions would be for firms to decrease investors’ costs of evaluating directors’ expertise. Consistent with this conjecture, we find that firms increasingly disclose directors’ expertise in image-based formats. Moreover, these disclosures lead to less reliance on ISS, and to higher voting support, particularly in cases where ISS tends to employ blanket recommendations and in firms with high information asymmetry. Finally, we find that this transparent disclosure of directors’ skills is informative regarding future firm outcomes