Leading US companies have been amending their corporate governance policies in response to growing shareholder dislike of rules that enable directors to be elected on a minority of votes cast at annual meetings. The changes, led by governance bellwethers such as Pfizer, could increase shareholders’ opportunities to oust directors and increase their influence on such matters as executive compensation. Corporate governance experts expect more companies to follow suit. Since the scandals at Enron, WorldCom and elsewhere, some shareholders have been pressing for greater accountability through the abolition of the “plurality” voting system for director elections.
Plurality voting theoretically enables a director to be elected on a single vote in uncontested elections. The vast majority of director elections in the US are uncontested. The plurality system has attracted criticism because shareholders usually cannot use proxy cards to vote against a nomination. They may vote either for a director or withhold their support, which has no impact on the result. In June, Pfizer, the pharmaceuticals group, was the first public company to say it was amending its governance principles so that a director must submit his resignation if a majority of votes cast are marked “withhold”.
The board then considers how to respond.
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