Majority Voting Now has the Majority
from March/April 2008
by Lois Gilman
Chalk up yet another blow to the old idea that once you were in the club—the directors’ club, that is—you practically had a Supreme Court justice’s guarantee of lifetime service. Not anymore. As of November, 66% of the companies in the S&P 500 had adopted majority voting, versus just 16% in February 2006, according to a survey by Claudia H. Allen, a partner at the Chicago law firm Neal Gerber & Eisenberg. Majority voting is showing up among smaller companies too, be they mid-cap, small-cap, or micro-cap, as well as at spin-offs (Discover Financial Services and Kraft Foods among them), IPOs (CVR Energy and VMware), and at least one company that has emerged from Chapter 11 bankruptcy protection (Delta Air Lines).
The result: More directors seeking reelection who fail to capture over 50% of the votes cast will have to step aside—even if that means leaving a board with an empty seat. Last year a handful of directors got fewer than 50% of their shareholders’ votes, including former astronaut Mae C. Jemison, a director of the genetics-diagnostic manufacturer Gen-Probe in San Diego, who tendered her resignation after winning the support of only 30% of the shareholders.
Many companies still have escape clauses that give boards the right to refuse a director’s resignation, which happened with Jemison at Gen-Probe. But some states have passed laws closing this loophole for companies incorporated there and limiting the period a rejected director can stay on to 90 days.
Among the outfits that have adopted rules in line with those laws are Cisco Systems and PG&E (in California); Union Pacific and Zions Bancorp. (Utah); and Microsoft and Weyerhaeuser (Washington).
Shareholder activists that have pushed for majority voting, such as the United Brotherhood of Carpenters and Joiners of America, applaud companies that change their bylaws in advance of their annual meetings, thereby heading off fractious dissent. “We have shareholder action being heard,” says Edward J. Durkin, director of the corporate-affairs department at the carpenters’ union. He expects to see majority-voting resolutions introduced at about 95 companies ahead of the coming April proxy season, but predicts, “You’ll probably see that 65% settled” before the annual meetings. Indeed, Newell Rubbermaid and Starbucks, both of which were among Durkin’s 95, subsequently adopted majority voting.
“We clearly have turned the corner. I hope that this will be the final season,” Durkin says. Adds lawyer Claudia Allen: “Majority voting has become the de facto standard for large public companies, and what happens among the S&P 500 in corporate governance trends tends to be predictive in the larger market.” The time for this idea has definitely come.
