Risk & Compliance

Pfizer to Install Some Majority Voting

The drug company will require that directors who get a majority of withheld votes must hand over their resignations to their companies' boards.
Stephen TaubJune 27, 2005

Becoming just one of a handful of companies to voluntarily give shareholders more say in the director-nomination process, Pfizer Inc. will adopt a form of majority voting.

The drugmaker amended its corporate-governance principles to require that any director who gets a majority of withheld votes must submit his or her resignation to the board. The board would then consider the resignation and make a recommendation.

Pfizer’s move is extremely unusual. Although the company’s new policy doesn’t provide shareholders with more say in who serves on the board, it does give them a kind of veto power over prospective directors. Most companies only allow “yes” and “withhold” votes, and they operate under the plurality system, which renders a director elected if he or she receives one yes vote.

“In recent years, the issue of majority voting for directors to the boards of public companies has emerged as a critical corporate governance issue that our board has addressed with today’s decision,” said Hank McKinnell, Pfizer chairman and chief executive officer, in a statement. “In doing so, we are continuing Pfizer’s tradition of leadership and innovation in corporate governance.”

With the Securities and Exchange Commission seemingly backing off from its proxy-access proposal, which would have allowed certain large shareholders to nominate directors under certain circumstances, shareholder activists have been pushing for a majority-voting policy, which would require directors to receive a majority of the yes votes cast in order to serve on a board.

This year an increased number of shareholder resolutions calling for a majority-voting policy have been submitted by activist investors. According to a recent count by the Investor Responsibility Research Center, so far 9 of the 34 proposals calling for a majority-voting policy received a majority vote. This is much higher than last year, when 12 such proposals generated support of just 12 percent, on average.

The reality, however, is that it’s rare for a director to receive a majority of withhold votes. According to a recent analysis by Institutional Shareholder Services, in 2004 the number of withhold votes reached a majority in just 12 director elections at seven companies — AvalonBay Communities, ExpressJet Holding, Federated Department Stores, Group 1 Automotive, Kilroy Realty, Maximus, and Pediatrix Medical Group.

The most prominent incident last year was the 45 percent withhold vote against Walt Disney chief executive officer Michael Eisner.

Further, during the 2004 proxy season, the California Public Employees’ Retirement System staged a withhold-vote campaign against any director who sat on an audit committee of a company that allowed an outside auditor to provide nonaudit services. That policy affected about 90 percent of Calpers’s holdings.

At Career Education’s annual meeting earlier this year, the company reported that about 62 percent of the shares of common stock outstanding were voted in favor of withholding authority to elect the three director nominees — Dennis Chookaszian, Robert Dowdell, and CFO Patrick Pesch.