Majority voting is being promoted to improve governance

• An alternative to plurality voting for directors

Plurality voting

• Majority voting is being promoted by shareholder advocacy groups, institutional investors and others as way to improve director accountability

• Follows debate and criticism of SEC's 2003 proposal to require shareholder nominees to be included in company proxy materials in certain circumstances

Many companies are adopting majority voting voluntarily

• By requiring any director who receives a majority of withheld votes to submit their resignation

• In most cases, adopted as a policy guideline,
  rather than as a by-law

• Majority can be based on votes cast or shares outstanding

Many companies have gotten shareholder proposals

• Submitted per SEC Rule 14a-8
• Proposing by-law changes to require that direct nominees be elected by a majority of the votes cast

• Stronger requirement than a policy guideline

• Early results show trend in shareholder voting

• Proposals fail when companies have a voluntary guideline
• Proposals carry when companies don't

• Shareholder Proposals

Changes to the DGCL will facilitate majority voting

• Should lead to more by-law proposals in 2007 proxy season

• DGCL Amendments

Other states may also adopt corporate law amendments to facilitate majority voting

• See Other State Corporation Laws below

Changes to NYSE Rule 452 are another complication

• Proposed changes to broker vote rule could make it more difficult to reach a majority of for votes

• NYSE Broker Vote Rule

Changes will facilitate majority voting

• DGCL §216

• Amendment authorizes stockholders to adopt a by-law
  to specify the vote necessary for election of directors (such as a majority vote) that the board cannot
  later amend or repeal
• So that the board cannot later amend the by-law
  to restore plurality voting

• DGCL §141(b)

• Amendment allows director resignations to become  effective upon the happening of a subsequent event
  (such as a failure to be elected by a majority vote,
  even where a plurality vote would be legally sufficient),
  and to make such resignations irrevocable
• Addresses concern that a director could claim that fiduciary duties require the director to refuse to
  resign

• These changes facilitate adoption of majority voting requirements as an alternative to the default standard of plurality voting provided by DGCL §216

• Wachtell Lipton commentary 7.07.06

Washington Business Corporation Act

• Recent amendments allow bylaw amendments to adopt marjority vote standard for directors in uncontested elections

• New section added to chapter 23B.10 RCW

• Microsoft directors adopted bylaw amendments effective 8.01.07 to adopt "modified plurality" voting standard for director elections

• Section 2.2 of amended Bylaws
• 2007 Proxy Statement  9.21.07
• Corporate Governance
• In contested election, directors elected by plurality vote
• In uncontested election, directors elected by majority of votes "cast", which excludes shares 1> marked as withheld, 2> for which there is an abstention, and 3> for which shareholder gives no direction or authority

Ohio Revised Code

• Ohio has passed law that allows companies to amend their charters to provide for majority vote standard

• Bill analyisis  HB 134 - Final
• Effective as of 1.01.08

Code of Virginia

• Plurality voting is standard for director elections

• 13.1-669  Voting for directors; cumulative voting

• However, code provision regarding director resignations was approved  on 3.09.07

• Resignation may be effective upon occurrence of one or more events (such as failure to receive specified vote for reelection)
• Appears companies can specify failure to receive majority vote as occurrence of one or more events that triggers irrevocable resignation
• 13.1-679. Resignation of directors
• Text of revised language

Effected by amending corporate charter:

Effected by amending by-laws:

Effected by amending corporate governance guidelines:

Law firm survey

Many companies are receiving shareholder proposals seeking adoption of majority voting 

• During 2005 proxy season over 60 companies received
  Rule 14a-8 proposals to adopt majority voting

• Proposals generally received strong support
• ISS commentary

• See 2006 Shareholder Proposals and 2007 Shareholder Proposals below
• See also November 2007 edition of Study of Majority Voting in Director Elections prepared by Neil, Gerber & Eisenberg

Early results show trend in shareholder voting 

• Proposals fail when companies have a voluntary guideline
• Proposals carry when companies don't

SEC denies exclusion of majority voting proposal

• Rule 14a-8 shareholder proposal requests amendments to Hewlett-Packard corporate governance documents

• To require a majority vote standard for director elections
• Submitted by United Brotherhood of Carpenters
  Pension Fund

• H-P had previously adopted a corporate
  governance policy

• Required directors to tender their resignation for consideration by H-P Nominating Committee
• If they received more withheld votes than for votes
• H-P policy announced  11.02.05

• SEC denies no-action relief requested by H-P

• No-action letter (avail 1.05.06)
• H-P cited Rule 14a-8(i)(10) to ask that proposal be excluded as already substantially implemented
• SEC didn't agree
• H-P's majority voting policy did not include many of the elements contained in ISS policy for a "meaningful
  alternative" to a true majority vote standard

• Expected that SEC will deny no-action relief to
  other companies receiving shareholder proposals
  for majority voting

• Even if they have voluntarily adopted a policy

Voting percentages track voting results         reported by ISS Corporate Governance Blog

EDGAR and other links also provided for company reporting of voting results 

American Bar Association

Delaware State Bar Association 

Council of Institutional Investors (CII)

Institutional Shareholder Services