A proposed rule from the Texas Stock Exchange (TXSE) could significantly alter how shareholder votes are counted by requiring brokers to vote uninstructed shares proportionally to the preferences of investors who do participate. Currently under review by the US Securities and Exchange Commission (SEC), the proposal has implications not only for governance outcomes, but also for the balance of influence between shareholders, management and proxy advisors.

If approved, the rule would mark a notable departure from established US proxy voting practice. While supporters may view it as a mechanism to amplify the voice of engaged investors, critics are likely to argue that it assigns voting outcomes to shareholders who have deliberately chosen not to vote. At a time when both Texas and federal policymakers are increasingly scrutinising shareholder rights and proxy advisory firms, the proposal adds another dimension to the debate over who exercises power in corporate governance.

How the proposal would work

The TXSE has proposed amending its rules to require exchange members to vote uninstructed shares held on behalf of beneficial owners of TXSE-listed companies. Under the proposal, brokers would allocate votes on each resolution in proportion to the instructions received from shareholders who actively voted.

The potential mechanics of the rule seem straightforward. If 60% of instructed shares support a proposal, 30% oppose it and 10% abstain, the same proportions would be applied to any uninstructed shares held by the broker. In practice, this can substantially increase the voting weight of active shareholders, particularly where participation rates are low.

The SEC is currently reviewing the proposal and must approve it, reject it, or institute proceedings to determine whether it should be disapproved by 9 September at the very latest. The Commission extended its review period by 45 days in July after the rule change was filed in May and published for comment in June.

A challenge to established voting principles

The proposal has the potential to affect different stakeholder groups in very different ways.

One concern is that proportional voting effectively attributes voting preferences to investors who have provided no instruction. Critics may argue that this weakens the principle that shareholders should actively determine how their own shares are voted. It could also lessen incentives to improve shareholder participation and may have an outsized effect in situations where turnout is low.

The implications could be particularly significant at companies with dual-class share structures. In such cases, proportional allocation of uninstructed shares could reinforce existing control arrangements by increasing the influence of already dominant voting blocs, potentially making it more difficult for minority investors to affect outcomes despite holding substantial economic interests.

These concerns are especially notable given the broader political context. Texas has increasingly positioned itself as a business-friendly jurisdiction and has supported initiatives that many investors view as strengthening corporate management relative to shareholders. At the same time, the state has remained active in its campaign against proxy advisory firms.

Why active investors could gain influence

The proposal also presents opportunities for certain investors.

Because uninstructed shares would follow the voting patterns of participating shareholders, active investors would gain greater influence over final outcomes. The proposal would effectively tie the treatment of uninstructed shares to the preferences expressed by those who engage with the voting process.

This could increase the value of stewardship and engagement activities. Votes cast by engaged shareholders would help determine how additional uninstructed shares are allocated across ballot items, potentially magnifying the impact of governance-focused investors.

Proxy advisors could also become more influential indirectly. If voting behaviour among active investors carries greater weight in determining overall outcomes, governance research and voting recommendations may become more important inputs into market-wide voting patterns.

Yet these potential benefits may come with increased scrutiny. Any perceived expansion in the influence of active investors or proxy advisors is likely to attract political and regulatory attention, particularly given recent legal and policy developments in Texas and the SEC’s broader focus on shareholder activity. This includes the controversial Senate Bill (SB) 2337, which Minerva Analytics filed a Texas Public Information Act request on last year seeking disclosure of communications between the Attorney General’s office, the Texas Stock Exchange, and related parties concerning proxy advisory services and SB 2337.

Echoes of ExxonMobil's retail voting model

The proposal also reflects broader efforts to address low retail shareholder participation, including initiatives adopted by ExxonMobil.

According to the filing notice, uninstructed shares often include a significant retail shareholder component. That observation draws comparisons with ExxonMobil’s retail voting programme, which allows investors to establish standing voting instructions, including the option to vote in line with board recommendations unless those instructions are actively changed.

Supporters view such approaches as a way to increase participation among retail shareholders, who historically vote at lower rates than institutional investors. Critics, however, contend that auto-voting mechanisms risk functioning as a de facto endorsement of management proposals, raising questions about the quality of participation versus the quantity of votes cast.

TXSE Chairman and Chief Executive James H. Lee has pointed to ExxonMobil’s approach as a model for encouraging retail participation and reducing reliance on proxy advisors, further highlighting the philosophical overlap between the exchange’s proposal and broader efforts to rethink voting behaviour in public markets.

The proposal also shortly follows ExxonMobil's move to Texas, a redomicile that prompted debate among some investors about how Texas' corporate governance framework could affect shareholder influence.

A test case for the future of shareholder rights

The proposal arrives at a pivotal moment for the TXSE, which began its public rollout in July and is seeking to establish itself as an alternative listing venue with ambitions to attract initial public offerings from 2027 onwards.

Whether the SEC ultimately approves the rule may prove less important than the debate it has triggered. At its core, the proposal raises a fundamental governance question: should influence flow primarily from share ownership, or from active participation?

For investors, the significance of the proposal lies in its potential to redistribute power among shareholders, management and intermediaries. The SEC’s decision will determine the immediate outcome, but the wider debate over uninstructed shares is likely to remain a prominent feature of discussions around shareholder rights, stewardship and proxy voting for years to come.