Following the governance precedent set by several other major companies earlier this year, The Home Depot adopted a majority voting standard for the election of its directors on Tuesday. The new voting standard goes into effective in May 2007, which will affect the company’s next board election.
The majority vote standard requires that each board candidate receives a majority of the votes cast to win the directorship. Under the new voting standard, directors that do not receive a majority of the votes must submit their resignation, but the board has the choice of accepting or rejecting the resignation.
Previously, Home Depot directors were elected under a plurality voting standard, which gives a board seat to the candidates receiving the most votes, regardless of whether the votes constituted a majority of the shares cast at the meeting.
Home Depot shareholders approved the majority voting proposal by 56 percent at the company’s annual meeting in May. That’s a higher percentage than the current proxy season average. So far, in 2006, majority voting proposals received an average 47.8 percent level of support from investors, according to Institutional Shareholder Services.
In the first half of 2006, 85 proposals for majority voting came to a vote. At least another dozen proposals have been presented for shareholder approval since the end of June.
Home Depot’s adoption of majority voting is unlikely to quell shareholder criticism, however. In May, shareholders expressed anger that the annual meeting did not include a business overview or a separate question-and-answer period—and that only one board member attended the meeting. Since then, Home Depot has stated that all directors will attend its shareholder meeting in 2007. In addition, the company plans to provide investors with the overview and Q&A sessions.
Shareholders also have placed demands that the board has yet to addressed. For example, some investors are calling for shareholders approval of supplementary, extraordinary retirement income or perks for executives—a proposal that 45 percent of Home Depot shareholders supported in May.
Further, institutional shareholder, the AFL-CIO, has asked the board’s compensation committee to recover any gains from executives who exercised stock options that were granted improperly. Home Depot is currently under an informal Securities and Exchange Commission inquiry into its stock-option granting practices. Irregularities were discovered during an internal review that showed that stock options were misdated five times between 1996 and 2000.
AFL-CIO officials have also asked that Home Depot co-founder and director Kenneth Langone resign, as he was a member of the committee overseeing stock options during that time. The AFL-CFIO is scheduled to meet with Bonnie Hill, head of the Home Depot compensation committee on September 7.