Qualcomm Inc. is changing its governance practicesÂ sort of. The San Diego-based telecom equipment maker announced that at its March 8 annual meeting, the company will ask shareholders to “declassify” its board of directors.
Should the resolution succeed, all board members will come up for re-election every year instead of every three years on a rolling, or staggered, basis. Corporate governance specialists believe that companies without a staggered system have more-responsive directors; theoretically, the entire board can be thrown out en masse by an outsider who launches a proxy fight. For the same reason, lack of a staggered board also makes a company more vulnerable to a hostile takeover.
Even if the measure succeeds, however, the new arrangement will not take full effect until 2007, when the last of the current directors stand for re-election.
Typical of a recent trend, however, the resolution to declassify the company’s board — which gives smaller shareholders more power — is being combined with another calling for the elimination of cumulative voting — a resolution that would have just the opposite effect.
Currently permitted at Qualcomm, cumulative voting gives minority shareholders more power by allowing them to cast all their votes for a single candidate. Under regular or “statutory” voting, shareholders must vote for a different candidate for each available seat.
“Cumulative voting gives minority shareholders more potential influence in board elections,” said a report issued last year by the Investor Responsibility Research Center. “Its effect is increased with a declassified board, since the more directors there are up for election, the greater the number of votes a shareholder may cast for one director.”
Of the 2,000 most widely held U.S. corporations, only 9 percent now allow cumulative voting — less than half the number that permitted the practice in 1990. On the other hand, last year 56 companies agreed to declassify their boards, according to Institutional Shareholder Services.