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Majority Voting Picking Up Steam

At least 20 such proposals passed during the most recent proxy season.
Stephen Taub, CFO.com | US
May 19, 2006

As the proxy season winds down, majority voting was very clearly one of the hottest issues.

According to Claudia Allen of law firm Neal, Gerber & Eisenberg, who updated a study she first published in February, at least 20 majority-vote proposals passed during the 2006 proxy season, 16 of them at companies that did not have a majority-vote policy in place.

Majority voting, as you would expect, is a standard under which board directors must get a majority of votes cast by shareholders in order to win or retain their seats. Although seemingly self-evident, this method of conducting board elections contrasts with the plurality standard still adhered to by most U.S. public companies.

Under the plurality model, directors who receive the most "for" votes are elected; there is no "against" option, and votes that are actively "withheld" or simply not cast are disregarded in the tally. Thus, in theory, a director nominee could be elected to the board with a single affirmative vote, even though all the other votes were withheld. "In an uncontested election," said Allen, "if you were slated, you were elected."

She also observed that of the 179 companies listed in the study, fully 135 adopted a majority-voting policy rather than a bylaw or charter provision. In other words, she elaborated, more than three quarters of the companies "retained a plurality election standard, but added a discretionary policy addressing the status of director nominees who fail to receive support from a majority of votes cast." Just 31 of these companies amended their bylaws; 13 adopted both a policy and either a bylaw or a charter provision.

Allen did note, however, that since Intel adopted a majority-vote bylaw in January, at least 40 companies have adopted a similar model.

A key to the Intel model is its director resignation policy. An incumbent director who fails to receive a majority of votes cast must submit his or her resignation to the board; the corporate-governance and nominating committee then recommends whether to accept it, and the full board has 90 days to decide.




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