(The opinions expressed here are those of the author, a

columnist for Reuters. This column is part of the weekly Reuters

Sustainable Finance newsletter, which you can sign up for here)

By Ross Kerber

Sept 10 (Reuters) - Would-be corporate vote reformers

keep running into the same problem: it's all so darn complicated

for the individual investor. Maybe reformers should be careful

what they wish for.

If a typical U.S. public stock issuer stages a vote on 9

ballot items at its annual meeting, shareholders in index funds

like the Vanguard 500 could face 4,500 decisions a year

about how to vote items on proxy ballots at corporate annual

meetings. Who could parse all that out?

A forthcoming paper by a group of business and law

professors from Duke, the University of Florida and Columbia

refers to this as the problem of "rational apathy," the idea

that shareholders won't waste their time figuring out how to

cast complicated votes with little impact.

Instead, fund companies to date handle the voting

themselves. Nobody used to care but environmental and social

reformers. Then, U.S. conservatives realized they could pressure

companies and asset managers over how they cast these ballots.

Top managers might dodge the line of fire by using

"pass-through" voting programs allowing fund investors to

influence some of the proxy ballots funds cast at corporate

annual meetings.

In a briefing with journalists this week, for instance,

Vanguard stewardship chief John Galloway said that 82,000

individual investors used its Voting Choice program during the

12 months ended June 30, about double the number from the same

period a year ago. They voted shares worth $9 billion, triple

the amount last year.

That's still a drop in the bucket compared to Vanguard's 50

million investors and $11 trillion in total assets under

management.

But get ready for things to take off. Galloway said Vanguard

has begun working with corporate sponsors to offer voting choice

to 401(k)-type retirement plan participants. He also released

new figures showing investors dispersing their votes across a

wider range of vote-policy choices including a new Egan-Jones

policy with anti-ESG criteria.

"We can see investors emphatically demonstrating the

'choice' in Investor Choice this year," Galloway said.

PUMPING UP THE BOSSES

Reformers pushing for things like reining in CEO pay have

high hopes the shift will move power away from fund managers who

tend to not rock the boat since, for one thing, they earn fees

managing corporate retirement accounts.

But in the draft paper, the academics write a surprising

consequence of more pass-through voting could be to increase the

power of boards, since individual investors tend to choose

policies that support management.

They cite two close votes that played out at Tesla

last year. Shareholders narrowly approved measures calling on

the electric carmaker to cut its director terms to one year from

three years, and to require only simple majority votes for

certain governance shifts rather than the current two-thirds

standard.

Vanguard's main stewardship team backed both measures. Of

those shares participating in last year's pilot-voting program,

36% either abstained or supported management. Had that 36%

applied to all of Vanguard's index equity funds, both proposals

would have fallen just under the 50% threshold needed by both

items, the authors found.

As proxy vote choice programs grow, "the realities of a

changed ecosystem become more and more likely," the authors

write.

Columbia University Law School professor Dorothy Lund, one

of the authors, said in an interview there's much to be said for

pass-through voting as a way to empower engaged investors who

disagree with their managers' voting.

But most mutual fund investors don't really want to think

about their holdings in the first place, let alone how to vote

their proxies. For that reason the new voting policies could

mainly empower proxy advisers, which in time could include

financial online influencers - "FinFluencers" - putting their

voting recommendations on TikTok.

In theory more competition would lead to better choices,

Lund said. A danger, she said, is that proxy voting becomes so

free-ranging that companies don't know which shareholders to

listen to.

"Implementation of a truly open proxy could lead to complete

fragmentation, where the issuers don't know who to speak with

because nobody's really directing the vote," Lund said.