Corporate & Securities Law

In the Crosshairs: Lack of Majority Voting for Director Elections

By broc

In the Crosshairs: Lack of Majority Voting for Director Elections

As I blogged recently, majority voting may be forced upon all public companies through Senator Schumer's governance legislation. Although the voluntary movement to adopt majority voting - although "voluntary" may be a misnomer since many companies adopted those standards under heavy pressure from shareholders - has had long legs over the past few years with larger companies, a study by The Corporate Library indicates that smaller companies have been slow to change and that nearly 75% of the Russell 3000 still use a straight plurality voting standard. In comparison, nearly 50% of the S&P 500 have switched to pure majority voting - and another 18% have adopted the plurality-plus-resignation approach (leaving 32% of the S&P 500 with a straight plurality standard).

When it comes to plurality-plus-resignation - also known as "majority voting light" or "Pfizer-style" - the first lawsuit has been filed against a company that refused to unseat some directors who didn't receive a majority. According to this complaint filed in the Delaware Chancery Court against Axcelis Technologies, a municipal pension fund has demanded to inspect the company's books and records relating to the board's decision to not to accept the resignations of three directors after they failied to receive a majority vote. The backdrop of this case is a failed acquisition.

Mechanics of Broker Discretionary Votes

In this podcast, Steve Bigler of Richards Layton & Finger provides some insight into the mechanics of broker discretionary votes, including:

- What is the difference between "broker discretionary votes" and "broker nonvotes"?
- Can companies tell which votes are being cast by broker discretionary votes?
- How would companies remove broker discretionary voting from their voting results? What is the technical process for a company (i.e. through a bylaw or a charter provision)?
- How might this differ for companies with a majority voting standard that have a director resignation policy?

The Problem with Blank Votes

Broker nonvotes is not the only voting issue being debated these days. A petition for rulemaking was filed recently with the SEC by Jim McRitchie of CorpGov.net to tackle the problems associated with blank votes. Jim writes: "The problem is that when retail shareowners vote but leave items on their proxy blank, those items are routinely vote by their bank or broker as the subject company's soliciting committee recommends. Current SEC rules grant them discretion to do so. ... We believe that when voting fields are left blank on the proxy by the shareowner, they should be counted as abstentions."

More information on this issue is included in the rulemaking petition and on CorpGov.net.

- Broc Romanek

Full post as published by The Corporate Counsel.net Blog on June 02, 2009 (boomark / email).