Corporate Governance Alert
Majority Voting: Where Are We Now?by Henry Lesser, Mark F. Hoffman, and William H. Bromfield State corporate laws generally provide that directors are elected by a “plurality” vote, in which the director nominee who receives the highest number of votes cast for an open director’s seat is elected to that position. Applicable Securities and Exchange Commission (SEC) voting requirements hold that shareholders in an election under a plurality standard have two voting choices for the election of directors: “for” or “withhold.” Under the plurality standard, the only votes that count when director votes are being tabulated are “for” votes. “Withhold” votes have no effect and are not counted. Thus, a director could be elected by a single “for” vote. Majority Voting Will Be Important Topic in 2006 Proxy SeasonOver the past few years, the plurality voting standard has been under attack by shareholder advocacy groups who are now actively promoting a “majority vote” standard for the election of directors. Under a typical majority voting standard, a director would be elected only if he or she receives affirmative votes from a majority of either the votes cast at the meeting or the shares eligible to be voted at a meeting, depending on the standard chosen by an issuer. Since 2004, majority voting for directors has garnered significant and increasing support from shareholder organizations, including Institutional Shareholder Services (ISS) and the Council of Institutional Investors (CII), and numerous companies have implemented majority voting in various forms, generally as part of their corporate governance guidelines or other board policy. Because majority voting will be an important topic for the 2006 proxy season and beyond, companies must understand both sides of the majority voting debate and the potential implications of changing from a plurality voting standard to some form of a majority voting standard. For our clients and friends, we have prepared a brief overview of these implications.
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