When AI Decides How Shareholders Vote, Boards Need to Rethink Governance
In January 2026, a major financial institution announced a shift from external proxy advisory firms to an internal AI system for guiding shareholder votes. This pivotal change is not only an investor story; it fundamentally alters the landscape of corporate governance.
Why Proxy Advisors Became So Powerful
Proxy advisory firms emerged to tackle the challenges of scale and coordination that institutional investors faced as they held shares in thousands of companies. They provided essential services that included:
- Aggregating data and analyzing disclosures
- Offering voting recommendations to facilitate responsible voting
- Addressing a coordination problem that left shareholders effectively voiceless
Over time, a handful of firms dominated the market, not through mandatory adherence but due to the efficiency and defensibility of their alignment with investor interests. Initially intended to help shareholders act collectively, these mechanisms gradually replaced direct shareholder judgment.
Why the Model Is Changing
The efficiency of proxy advisors has exposed a tension between efficiency and judgment. While standardized policies provide consistency, they often lack the necessary context for complex governance decisions, which are increasingly reduced to binary outcomes. This has led to:
- Intensified political and regulatory scrutiny
- Asset managers questioning the outsourcing of fiduciary responsibilities
As a result, proxy advisors are evolving away from uniform recommendations, and large investors are enhancing their internal stewardship capabilities. The introduction of artificial intelligence into this sphere promises to replicate the benefits of proxy advisors but raises new governance challenges.
What AI Changes, and What It Doesn’t
AI brings scale, consistency, and speed to the voting process but does not eliminate the need for judgment. Instead, it relocates judgment to the design of the AI systems, including:
- Model design
- Training data
- Variable weighting
- Override protocols
These choices can be as impactful as a proxy advisor’s voting policy, yet they are often less visible. Consequently, AI risks making shareholder challenges to managerial power quieter and less traceable.
The Governance Questions Boards Haven’t Been Asking
This shift necessitates a reevaluation of governance practices, prompting boards to ask:
- How are we being assessed? AI systems utilize continuous governance signals from various public sources.
- Where could we be misread? Nuances that are clear to human readers may confuse AI, leading to misinterpretations.
- When something goes wrong, who is accountable? The absence of a universal appeals process for AI-informed votes complicates accountability.
Consider This Scenario
A company’s board chair shares a name with a former executive involved in a governance controversy. An AI system mistakenly associates the controversy with the chair, increasing perceived governance risk. Concurrently, a thoughtful decision to delay CEO succession to maintain stability during an acquisition is flagged as a governance weakness by the AI, because the rationale is scattered across multiple sources. This situation illustrates the potential for AI to misinterpret context and escalate governance issues without human oversight.
What Boards Can, and Cannot, Do
While boards cannot control how asset managers design their AI systems, they can adapt their governance practices. Initiatives include:
- Enhancing narrative disclosures to clarify governance philosophy and judgment processes
- Rethinking engagement with investors to include discussions about the AI processes and human judgment
This approach emphasizes the importance of clarity, consistency, and context in governance communications, reducing the risk of misinterpretation.
Governance in an Algorithmic Age
As AI becomes integral to voting processes, traditional assumptions about governance are challenged. Boards must recognize that:
- Silence is rarely neutral.
- Ambiguity can lead to confusion.
- Consistency across disclosures will become increasingly valuable.
The effectiveness of boards in navigating this transition will hinge on their ability to document judgment, explain trade-offs, and communicate a coherent governance narrative that withstands scrutiny from both machines and human analysts.
