Risk & Compliance

Investors Back Shareholder Resolutions

This year, two measures got more than two-thirds average support among shareholders: calls to repeal classified boards and moves seeking to erase s...
Stephen TaubAugust 22, 2006

Investors are increasingly supporting shareholder resolutions calling for change in a company’s corporate governance practices. On average, eight of 11 different measures received more support this past year than during the 2005 proxy voting season, according to a preliminary Institutional Shareholder Services (ISS) analysis of the 2006 proxy voting season.

To be sure, such resolutions aren’t binding on the target company and thus are, in effect, straw polls. But in recent years, more and more companies have made changes in their corporate governance practices after receiving majority support—or strong minority support—for a related measure.

In 2006, two measures received more than two-thirds average support among shareholders: those calling for repeals of classified boards and those seeking to elimination of supermajority voting. (A classified board structure is one in which only some directors are elected each year, while a supermajority amendment in a company’s charter requires a big majority of shareholders to approve significant corporate changes.)

The average vote for 40 measures calling on companies to repeal their classified boards was nearly 68 percent, according to ISS. That was up from an average vote of 63.2 percent in 2005. Further, nearly 69 percent supported 19 measures calling for the elimination of supermajority voting, up from 63 percent the prior year.

Meanwhile, 49 of voting shareholders supported measures calling for the elimination of the use of poison pills—down from 2005 when such resolutions garnered 60 percent support. That drop-off, however, might stem in part by the agreements by a large number of companies in recent years to eliminate poison pills. Many boards have similarly shed classified voting.

At the same time the most high-profile issue of the 2006 proxy season may have been majority voting. “Majority vote to elect director” proposals got an average level of support of 47.8 percent, up from 43.7 percent in 2005, according to ISS.

Overall, the number of proposals that got more than 50 percent support nearly tripled from 13 to 35 this year, the shareholder services firm reported. In 2004, these proposals averaged fewer than 12 percent of votes in favor, without a single proposal winning a majority, according to ISS.

Investors—mainly union pension funds led by the United Brotherhood of Carpenters and Joiners of America (UBCJA)—filed 85 majority election proposals that came to a vote in the first half of 2006. At least another 12 proposals have been on corporate ballots during the second half of the year.

That compares with 57 proposals that came to a vote in the first six months of 2005, and 12 in the same period of 2004. During all of 2005, 62 of the 89 majority vote proposals filed came to a vote.

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