Academic

Should we be concerned about corporate use of electronic voting?

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

In my current research on shareholders and new voting initiatives, I have been surprised by the number of companies that both allow and encourage electronic voting. That research, though mainly anecdotal at this point, suggests an increase in corporate reliance on electronic voting. Then too, new measures such as the e-proxy rules and state statutes enabling shareholder participation in meetings via electronic communications encourage the use of electronic voting. However, scholars who focus on voting in the context of local, state and federal elections have expressed significant concerns regarding the inaccuracies associated with electronic voting. Hence, I have begun to wonder whether we have sufficiently considered the issue in the corporate context.

Many corporations make electronic voting available to their shareholders. Thus, in addition to allowing shareholders to send their proxies through the mail (and in some cases by fax), some corporations give shareholders the option of submitting their proxies over the phone and/or over the Internet. Then too, some corporations enable shareholders to revoke their proxies electronically over the phone or via the Internet. Corporations that allow such electronic voting contend that it is beneficial because it may increase shareholder participation not only by making it easier for shareholders to submit their proxies, but also by allowing shareholders to make such submissions at the last minute during the shareholder meeting. Electronic voting also appears to be more effective because votes can be recorded instantaneously.

However, the experience with local, state and federal elections reveals defects with electronic voting. Or more specifically, defects with the software used to collect and process vote results. These defects have led to voting inaccuracies including lost votes, switched votes and the recording of additional votes. Thus in 2000 an electronic voting machine in Iowa recorded four million votes in a county with only three hundred voters. One 2007 study found that a number of systems used to tabulate votes had switched thirty to forty percent of the votes cast. Then too, some states, such as California, that certify the technology used to collect and record votes have had to decertify several systems after an audit of those systems revealed significant inaccuracies in recorded votes. As a result of these problems, scholars and others familiar with electronic voting in the context of local, state and federal elections have called for greater monitoring of the electronic voting process and the systems used to implement that process.

Is it likely that this kind of problem would carry over to the corporate context? To be sure, corporations are dealing with a smaller universe of potential voters, especially considering the block votes held by institutional investors. Hence, to the extent the problem with electronic voting relates to additional votes cast, it appears to be a relatively easier problem to detect. Then too, even the problem of lost votes may be easy to detect given that shareholders generally must register prior to voting electronically, unless of course the system fails to record both the vote and the registration. However, the problem of switched votes is much more difficult to detect. Indeed, in traditional elections, such problems usually are not detected unless and until an after the fact audit has occurred and/or another more obvious flaw (such as additional votes recorded) arises in connection with the election at issue. To be sure, the problem of switched votes may not be as significant in the corporate context because most directors run unopposed. However, to the extent recent voting initiatives may increase the probability of contested elections, switched votes may become a bigger issue. Then too, given the increased adoption of majority voting provisions, switched votes may be a concern for candidates needing to receive the requisite majority. Moreover, switched votes represents a concern when shareholders vote on transactions that do not involve director elections because in those cases a particular percentage of votes is required to approve a given transaction.

In this regard, perhaps we should be concerned about the integrity of electronic voting results. To date, many corporate scholars and commentators have expressed concerns about the security issues associated with the increased use of technology in the corporate sector, including measures such as electronic shareholder forums and e-proxies. However, there has been less attention paid to the issue of vote integrity. While it may not be as severe a concern, it still is worthy of more focused discussion.

Full post as published by Conglomerate on March 11, 2008 (boomark / email).