Council of Institutional Investors

Director Elections

CII supports reforms to ensure meaningful director elections centered on fairness and accountability to the company's owners. 

As agents for shareowners, corporate directors have a responsibility make decisions in the company's best interest. Once a year, shareowners elect directors to communicate how well they believe directors are fulfilling this charge.  Once considered routine, director elections are evolving into an exercise of consequence.

Whether director elections provide a valuable monitoring mechansim depends on a wide range of factors, including state law, companies' governing documents, exchange listing requirements and federal rules on proxy voting. CII works collaboratively with companies, other market participants and policymakers to address deficiencies throughout this patchwork. Our efforts touch several specific topics, including the following:
 

  • Majority Voting: In uncontested elections, support from a majority of votes cast should be required to elect a director. Most companies have a vote requirement assuring the nominee's legal victory upon obtaining one favorable vote. Read more...
  • "Zombie" Directors: Uncontested directors who receive less than majority support should step down. In practice, the handful of directors who fail to garner majority backing often remain on the board indefinitely.  Read more...
  • Proxy Access: Shareowners meeting reasonable qualification standards should have the ability to place a limited number of nominees on the company's proxy card. At most companies, shareowners have no such "access."  Read more...
  • Universal Proxy: In a proxy contest, shareowners should be able to use either the management card or the dissident card to vote for the combination of nominees they wish to represent them. In practice, neither card presents a "universal" (i.e. complete) list of nominees, resulting in shareowners not having full flexibilty to support the nominees they prefer.  Read more...

A decade ago, most public companies had classified boards; directors were elected for multi-year terms and elections were staggered. This made it virtually impossible for investors to “clear the board” in one year, or even register dissatisfaction with a particular director in a given year because he/she might not be standing for re-election that year. However, after sustained pressure from investors, a majority of large, mid, and small-cap companies have eliminated classified boards. Classified boards remain most pervasive among smaller companies.