Directors lose elections, but not seats; staying power of board members raises questions about investor democracy

A record number of corporate directors snatched victory from the jaws of their defeat by shareholders this year.

In a sign of investor discontent, 93 board members at 50 companies have received fewer than 50% of votes cast during annual meetings so far in 2009, according to RiskMetrics Group Inc. That's more than twice as many as any other year since the proxy-advisory firm began tracking the trend in 2003.

But none of those directors lost a board seat. All serve companies with "plurality" voting, meaning they can win uncontested elections with a single vote. Re-elected directors at two companies offered to resign under those companies’ "plurality plus" policies, but were reappointed.

The staying power of these board members raises questions about the limits of shareholder democracy. But snubs of sitting directors can help unhappy shareholders achieve other corporate-governance goals.

Activist investors pressing for more accountability in director elections say they aren't dismayed by the survival of minority-vote directors. Edward J. Durkin, corporate-affairs director for the United Brotherhood of Carpenters and Joiners of America, has pushed for majority-vote rules. Mr. Durkin says the rules are working, because boards are more responsive to investors. "It doesn't require people getting thrown off boards," he says.

The ranks of directors without majority support are likely to swell further next year. Under New York Stock Exchange rules effective in January, brokers no longer can vote clients' shares during elections.

Brokers typically back incumbents. Eliminating broker votes "could tip the balance" against board members opposed by activist institutional investors, predicts David Drake, president of Georgeson Inc., a management proxy adviser.

Source: Wall Street Journal; 09/26/09