Follow-Up: Majority Voting "Has Gained Traction"
from
September/October 2006
by Julie Connelly
Investors’ push to elect directors by majority vote is gathering speed. As of mid-July, according to Claudia H. Allen, a partner at the Chicago law firm Neal Gerber & Eisenberg and author of a study of majority voting in director elections, 192 big companies had adopted some change to their bylaws favoring the trend, versus the 87 she identified in February. The reform, she concludes, “has gained traction among companies of substantial size. This is a movement that has taken hold.” Among the recent converts: Dell, Gannett, and Intel.
Majority voting is getting a political push via bills introduced in the California and Delaware legislatures. California’s version wants to make majority voting the default standard for companies incorporated there—that is, the automatic standard unless bylaws or articles of incorporation specify something else. The Delaware legislation would retain plurality voting, which permits directors to gain office with the support of fewer than half the voting shareholders, as the default standard. But it would prevent boards from changing majority-vote bylaws unless shareholders consented to turn back the clock. Meanwhile, a committee of the American Bar Association that is studying changes to the Model Business Corporation Act has proposed a majority-voting standard that can be adopted unilaterally by either the board or the shareholders without the need to alter a company’s articles of incorporation.
Of the 192 companies in Allen’s study, 151 retained plurality voting but added a discretionary policy requiring directors who receive more “withhold” votes than votes for their election to submit their resignations to the board for consideration. In other words, the board can ask them to stay on. The remaining 41 companies adopted a true majority standard: Directors who score less than 50% of the vote must step down, period.
Given the growing sentiment in favor of majority election of directors, it makes sense for board members to take the high road. That’s why Allen believes that “in three years, there is a good likelihood that most companies will have some form of majority voting for directors.”
