Council of Institutional Investors

Majority Voting for Directors

CII's corporate governance policies state that in uncontested elections, directors should be elected by majority vote; directors who fail to receive a majority support should step down from the board and not be reappointed.

Majority voting for directors ensures that shareowners’ votes have "teeth", keeping board members responsive to the shareowners they represent.

While the vast majority of companies in the S&P 500 use the majority vote standard for uncontested director elections, thousands of U.S. companies still use the plurality vote standard. 

What is majority voting?
Companies with majority voting require uncontested board nominees to receive more "for" votes than "against" votes in order to be elected or re-elected.

Companies with majority voting may choose to provide reasonable accomodation, such as 90 or 180 days, for the board to ensure a smooth transition in the event of a director's defeat. Such provisions ensure that boards have sufficient opportunity to recruit a suitable replacement and to maintain compliance throughout the transition with contractual agreements, exchange listing standards and regulatory requirements. 

Companies with majority voting for uncontested elections still use a plurality standard for contested elections, which would otherwise be unworkable.

What is plurality voting?
With plurality voting, the nominees receiving the most "for" votes are elected to the board. In an uncontested election, where the number of nominees and available board seats are equal, every nominee is elected upon receiving just one "for" vote. As such, plurality voting in uncontested elections results in a "rubber stamp" process that entrenches boards and, occasionally, directors who lack the confidence of most of the shareowners.

Companies with plurality voting provide shareholders with the option of affirmatively witholding their vote. Witholding a vote provides shareowners with a means of communicating their dissatisfaction with a given nominee, but has no legal effect on the outcome of the election. An uncontested nominee can be elected to the board even if the "withold" choice is marked on ballots representing 99 percent of outstanding shares.

Some companies with plurality voting have adopted policies requiring majority-opposed directors (i.e., directors with more "withold votes" than favorable votes) to tender their resignation to the board. However, at these so-called "plurality-plus" companies, boards retain complete discretion to reject such resignation letters, and in the overwhelming majority of cases, boards use that discretion to retain the unpopular director.

Evidence of lack of accountability
From 2013 to Oct. 26 2016, uncontested directors in the Russell 3000 failed to obtain majority support 164 times at 104 unique companies, the vast majority of which had a plurality standard with no resignation policy. Total rejections amounted to 195, as 22 directors failed to obtain majority support more than once. Strikingly, out of these 195 rejections, there were only 36 departures from the board as of Oct. 26, 2016. This represents a turnover rate of 18 percent. Out of the 164 individuals rejected once or more, directors, 36 (22 percent) had left the board as of the same date.

Looking only at majority-opposed directors at “plurality plus” companies over the same time period, 63 directors failed to receive majority support 76 times at 34 unique companies. Of those 76 rejections, in only 16 instances (21 percent), the director had departed from the board as of Oct. 26, 2016. Of the 63 unique rejected directors, 16 (25 percent) had departed the board as of that date. 

In contrast, at companies with majority vote standards, directors failed to receive a majority of votes cast 6 times at 6 companies. (None of these directors failed to receive majority support more than once.) Of these 6 rejected directors, four--66.7 percent--were off the board as of Oct. 26, 2016. 

CII campaign urging companies to adopt majority voting for directors
For many years CII has urged companies to adopt majority voting if a shareholder proposal to adopt the reform received majority support. In the summer of 2016 CII launched a broader campaign to encourage all companies in the Russell 3000 index to adopt majority voting, regardless of their history with related shareholder proposals. The campaign extends to both companies with traditional plurality voting standards as well as companies with "plurality plus" standards.  
   

An example of our outreach is available here. Companies are identified for contact using FactSet data on corporate governance practices. To see the list of companies that have thus far received a letter from CII, please click here (updated 11/14/2016). If you have any additional questions about the campaign, please contact CII Research Analyst Gabriel Morey at gabriel@cii.org.

The campaign's depth is a response to the "majority voting gap" that exists between large-cap companies and smaller companies. According to FactSet, 9 out of 10 S&P 500 companies have majority voting in place, but just 3 in 10 Russell 2000 companies have it. 


Majority voting listing standards
In 2013 CII petitioned NYSE Euronext and the Nasdaq Stock Market to require listed companies to (1) elect directors by majority vote when there is not a contest for board seats and (2) not reappoint directors who fall short. Many CII members and other market participants endorsed CII's petitions, including: members of the CII Advisory Council (NYSE, Nasdaq), the California State Teachers' Retirement System (NYSE, Nasdaq), the Florida State Board of Administration (NYSENasdaq), Hermes Equity Ownership Services (NYSE, Nasdaq) and the UAW Retiree Medical Benefits Trust (NYSE, Nasdaq). 

Resources & Advocacy
CII corporate governance policy on majority voting for directors
CII annual letter-writing campaign urging boards not to reappoint "zombie" directors (members only)
CII campaign to make majority voting an exchange listing standard (see above and June 20, 2013, letters below)

Correspondence
July 8, 2014 CII letter to SEC on Committee on Capital Markets Regulation recommendation regarding zombie directors
March 19, 2014 CII letter to NASDAQ on majority voting listing standard
March 19, 2014 CII letter to NYSE on majority voting listing standard
Feb. 24, 2014 CII letter to Industry Canada regarding its Consultation on the Canada Business Corporations Act
Aug. 2, 2013 CII Advisory Council members' letter to NASDAQ on majority voting for directors
Aug. 2, 2013 CII Advisory Council members' letter to NYSE on majority voting for directors
June 20, 2013 CII letter to NYSE on majority voting for directors
Attachment: proposed listing standards
June 20, 2013 CII letter to Nasdaq on majority voting for directors
Attachment: proposed listing standards
March 26, 2013 Delaware bar association response to CII's October 25, 2012, letter on majority voting
October 25, 2012 CII letter to Delaware bar requesting mandatory majority voting for all DE companies 
August 11, 2011 CII letter to Delaware bar requesting majority voting to be DE default