The Council of Institutional Investors (CII), which represents public, labor, and corporate funds, has urged two prominent lawyers? groups to support majority voting as the default legal standard for uncontested board elections.??
CII has written to the chairman of the American Bar Association (ABA) Business Law Section?s Committee on Corporate Laws and asked the panel to amend Section 7.28(a) of the Model Business Corporation Act (MBCA) to make majority voting the default standard, instead of plurality voting. The MBCA is the basis for the corporate laws of most U.S. states besides Delaware. The investor group also sent a similar letter to the Delaware Bar Association, which asks the legal group to support a similar amendment to Section 216(3) of the Delaware General Corporation Law.
?The benefits of a majority vote standard are many: it democratizes the corporate electoral process; it puts real voting power in the hands of investors with minimal disruption to corporate affairs; and it makes boards? more representative of, and accountable to, shareowners,? Jeff Mahoney, CII?s general counsel, wrote in his letter to the ABA and his letter to Delaware lawyers.?
The ABA amended the MBCA in 2006 to help enable companies to adopt majority voting provisions and director resignation policies, but the group declined then to replace plurality voting as the default standard.??
Since then, majority voting has gained wide acceptance among large-cap firms, thanks primarily to shareholder proposals filed by the United Brotherhood of Carpenters and other investors. About 820 public corporations have adopted a majority standard, including 397 issuers that account for 78 percent of the S&P 500 index, Mahoney noted.?
The Senate version of the Dodd-Frank Act included a majority-voting mandate, but that provision was dropped during negotiations over the final version of the law. Since then, shareholders have continued to file proposals, and public pension fund officials in California and Florida have done letter-writing campaigns to prod issuers to adopt majority voting. However, many small and mid-cap firms still have plurality voting, which means that there are no legal consequences when investors withhold majority support from a director. Less than 1 percent of U.S. directors receive majority opposition each year, but just a handful of those board members have ever stepped down.??
?Despite the movement to adopt a majority vote standard in recent years at primarily larger companies, many midsize and smaller public corporations have continued to defer adopting majority voting, perhaps because of fewer shareowner proposals directed at those companies. The disappointing result is that, currently at most public corporations, directors who fail to receive a majority of votes cast rarely resign,? Mahoney wrote.? ?For example, in 2010, fifty-nine corporations had at least one director that failed to obtain a majority of the votes cast, and at fifty-four of those companies the rejected directors did not resign from the board. Moreover, so far this year, of the forty-three directors who have received less than majority support, only one has resigned.??
Majority voting has gotten more media attention recently. In July, Bloomberg Businessweek published an article, "America?s Teflon Corporate Boards," that noted more than 200 directors have received majority opposition in the past three years, but only a few have left their boards.??
Mahoney said both legal groups have responded and said they would consider CII?s request.?
Majority voting remains popular among investors.?For the spring 2011 proxy season, shareholders submitted almost 80 resolutions--the most on any topic this year. After more than two dozen withdrawals, these resolutions went to a vote at 36 companies, and averaged 59.7 percent approval, according to ISS data.??
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