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The Majority Doesn't Rule

Loophole allows Gen-Probe director, who resigned after a negative shareholder vote, to remain on the board. The company simply declined to accept it.
Stephen Taub, CFO.com | US
July 20, 2007

In a corporate action that could have wide ramifications, diagnostic test provider Gen-Probe Inc. refused to accept the resignation of a board member who failed to receive majority support from shareholders at the May 31 annual meeting.

Dr. Mae C. Jemison had insufficient votes for reelection as a Gen-Probe director, and under the company's by-laws was required to tender her resignation. Delaware law provides that she could continue to serve pending a decision of the board whether to accept her resignation.

However, the company's nominating and corporate governance committee unanimously declined to accept the resignation.

The decision to reject such a resignation appears is a rare occurrence since the majority-vote movement for director election took off two years ago. It underscores a loophole in proposals designed to give shareholders more power. By-law changes installing majority-vote provisions have buoyed activist investors for the apparent power they now have to throw out directors they feel are not performing properly. However, boards still have an opportunity to retain the director by declining to accept the obligatory resignation.

San Diego-based Gen-Probe said it believed the negative shareholder vote was substantially the result of opposition to Dr. Jemison from Institutional Shareholder Services based on poor attendance.

The nominating and governance committee reviewed the situation after she tendered her resignation, the company said in a regulatory filing, adding that during a July 6 conference call it considered her qualifications, past contributions, historical attendance and participation, and commitments to future attendance. Prior to 2006, Dr. Jemison had missed only one regularly scheduled board meeting, the filing said, and "there were reasonable justifications" for her later absences.

The committee also communicated with ISS about the circumstances of Dr. Jemison's attendance, the stockholder vote, the tender of resignation, and ISS related policies. "The committee concluded that a decision to decline Dr. Jemison's tendered resignation would be consistent with ISS policies in light of all relevant circumstances, as discussed between the Company and ISS subsequent to the annual meeting," Gen-Probe said.




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