GOVERNANCE

Building a better proxy vote

The United Brotherhood of Carpenters and Joiners of America — whose members participate in 90 jointly trusteed pension funds in the U.S. and Canada with assets totaling $45 billion — has come up with a well-reasoned proposal for doing away with the “withhold” vote in proxy statements for the election of corporate directors.

If the proposal is adopted, shareholders could vote for, or abstain, at all companies with plurality-vote standards for electing directors.

The union petitioned the Securities and Exchange Commission in May for proposed rulemaking on the issue. The SEC is hasn't set a timetable for acting on the petition.

It is a good idea, one that would modernize an outdated wording and voting method. An “against” vote in plurality elections might be misinterpreted by shareholders to convey having some legal effect on the outcome, the proposal noted.

The carpenters union, through its affiliated pension funds, has been regarded as the leader in championing the movement for corporations to adopt a majority vote standard for the election of directors. The effort has contributed to building its credibility on promoting better corporate governance and corporate performance, as well as shareholder interests.

In large part because of its leadership, 75.3% of Standard & Poor's 500 companies have a majority-vote standard for electing directors, according to data from Institutional Shareholder Services. But among most publicly traded companies, especially smaller companies, the plurality vote standard still reigns. In the Russell 3000 universe, only 28.1% of the companies have a majority-vote standard. Shareholders in these elections may vote for a director, or withhold their vote.

Edward J. Durkin, director, corporate affairs department, United Brotherhood of Carpenters and Joiners, Washington, who wrote the petition, argued persuasively for giving shareholders the opportunity to vote for or abstain in elections under the plurality vote standard, instead of the present choices of for or withhold.

Such a “ballot would accurately convey shareholders' options and eliminate any ambiguity or confusion associated with the current "withhold' vote,” he wrote.

Withhold is “not a valid vote option under any vote standard and its continued use contributes to confusing and misleading proxy communications that threaten the integrity of director elections,” he wrote.

Until all companies adopt a majority-vote standard, the SEC should give shareholders a clearer voice and choice in elections under the plurality standard.