The largest U.S. public pension fund has launched a well-aimed campaign to get more public companies to adopt a “majority” rules policy for uncontested election of directors.
Indeed, the effort by the California Public Employees’ Retirement System is the proper use of this institutional investor’s heft to strike a better balance between shareholders and the boards of directors that are supposed to represent them.
Simply stated, too many companies have stuck with a “plurality” system when a director runs unopposed. Essentially, the plurality has to only be one vote, even if all other holders “withhold” their votes from the director.
“Majority” processes vary but they are pretty much what they sound like and should be familiar to anyone who has sat through a grade school civics class. Essentially, you have to get more “for” votes than those withheld or you have to at least offer to resign.
In this blogger’s previously expressed view, universal acceptance among U.S. publicly traded companies of the majority vote for directors makes unnecessary some of the other investor power pushes in which CalPERS and others have been active.
One of those is the so-called say on pay. It’s a misnomer on its face since most of those proposals for shareholders to have an after-the-fact vote on executive compensation are non-binding. Not much of a say. In majority voting, shareholder votes for directors have real power and can be used against directors at companies where shareholders think CEO compensation is too high.
Also unneeded is the ability of some large holders to nominate directors whose candidacy would be included and voting materials distributed by the company. It’s fascinating that this long-standing governance issue, referred to in short hand as “proxy access,” has now arisen in Senate deliberations about much broader financial regulatory reform, according to today’s Wall Street Journal.
Although I support regulatory or legislative oomph behind adoption of majority voting, it’s a trend that seems to be taking off without official edict. Maybe it’s the undeniable lack of fairness in the “plurality” system.
CalPERs said in a press release that as of September 2009 about 71% of the S&P 500 companies and 50% of the Russell 1000 had come around to the majority rules concept.
CalPERS specifically said it would ask 58 of the top U.S. companies in its equities portfolio to adopt the majority rules standard. Said George Diehr, chair of the CalPERS investment committee, “The policy should include the required resignation of any director that receives a withhold vote greater than 50% of the votes cast. “
Ok, it might be a little much to suggest that there’s another gold rush going on in California. But investors did flock to the state’s latest municipal bond offering and they did so in such a way – like New Jerseyans queueing up days before tickets for a Bruce Springsteen concert go on sale – that California raised the size of its offering by 25%.
