Companies may be moving to provide shareholders with a greater voice, but the trend still seems to have a way to go. A study of 175 instances since 2009 when corporate directors garnered a majority of withhold votes from shareholders shows just 5% of the directors ended up leaving the board.
“Director elections are the fundamental accountability mechanism in our form of capitalism,” says Jon Lukomnik, executive director at the Investor Responsibility Research Center Institute (IRRC), which commissioned the study. “Yet it is an open secret that most directors can be elected with one vote. There is largely a plurality voting system. Moreover, even when directors fail to receive a majority of votes, they still serve.”
Even when investors express dissatisfaction by withholding votes in a director election, companies generally did not make governance changes, says Kimberly Gladman, director of research and risk analytics at GMI.
“In most cases, there were not any changes, Gladman says, but notes compensation as an area where companies were more responsive. “In cases where directors on the compensation committee received withhold votes, some companies made changes.”