Risk & Compliance

Stronger Challenges to Plurality Rule

The votes at Caterpillar and Gannett signal a ''very strong start'' for the majority model for electing board members.
Stephen TaubApril 18, 2005

Shareholders seem to think that nominated directors should receive a majority of votes cast in order to get the job.

In this proxy season’s first two such resolutions — both of them nonbinding — 38 percent of Caterpillar shareholders and 48 percent of Gannett shareholders voted for those measures.

During last year’s proxy season, 12 such proposals came to a vote, according to the Investor Responsibility Research Center. Shareholders of Albertson’s, where 17.8 percent gave the measure their support, were the strongest advocates of the majority model.

Most U.S. corporations use the plurality model, explained the IRRC. Under this structure, shareholders can vote “for” a director, or they can withhold their votes; there is no “against” option. The United Brotherhood of Carpenters and Joiners of America, which submitted the Caterpillar and Gannett resolutions, argues that the plurality model is flawed because a director nominee can be elected “with as little as a single affirmative vote, even while a substantial majority of votes cast are ‘withheld’ from that director nominee,” the IRRC pointed out in a recent report.

According to the IRRC, the carpenters’ union has submitted similar proposals to 53 other companies this proxy season, of which 42 are pending. The IRRC is tracking another 29 submissions, all from labor groups.

“I think we’re clearly off to a very strong start with these votes,” Ed Durkin, the union’s director of corporate affairs, told Dow Jones.