Institutional Shareholder Services (ISS), the US-based proxy voting and corporate governance agency, says that it would generally support non-binding proposals seeking majority vote requirements in boardroom elections.
“Director accountability is the hallmark of good governance,” says Martha Carter, ISS’s director of US Research. “The board election process must ensure that shareholders’ expressions of dissatisfaction with the performance of directors have meaningful consequences. A majority vote standard transforms the director election process from a symbolic gesture to a meaningful voice for shareholders.”
Under the US proxy voting structure, a plurality vote is the default standard in the election of the board of directors. Under a plurality system, a board-backed nominee in an uncontested election needs to receive only a single affirmative vote to claim his or her seat in the boardroom. Even if holders of a substantial majority of the shares withhold support for an individual, the director nominee still “wins” the seat.
The basic premise of majority voting is simple and direct, requiring a director nominee to receive support from a majority of the votes cast in order to be elected or re-elected to the board. The failure of a nominee to receive majority support would necessitate action by the board.
As chances for the director nomination proposal grow dimmer at the SEC, interest in majority voting grows more intense. Majority voting increasingly is being seen as the last measure still standing in the drive to reform director elections.
The arguments against a majority vote requirement also raise substantive issues, including the potential to create sudden vacancies on a company’s board. However, Carter points out that the current director election system requires reform to give full effect to the shareholder franchise.