The Council of Institutional Investors urged the American and Delaware bar associations to revise their corporate voting standards to require that companies' “zombie” directors — those who fail to achieve a majority of shareowners' votes in uncontested elections — leave their boards.
In a letter to A. Gilchrist Sparks III, chairman of the American Bar Association Business Law Section's Committee on Corporate Laws, CII General Counsel Jeff Mahoney calls on the ABA committee to amend its Model Business Corporation Act to require majority voting in the uncontested election of directors at public companies. Some 32 states follow the act, according to an ABA statement.
In a separate letter to Norman M. Monhait, chair of the Delaware State Bar Association's Council of the Corporate Law Section, Mr. Mahoney urges that the Delaware council propose amendments to the Delaware General Corporation Law to achieve a similar objective.
“Under the council's suggested amendments, in uncontested elections for board seats, any director who fails to receive a majority of the votes cast is not elected and must leave the board,” according to a CII statement about the letters. “In the bizarre world of corporate board elections, scores of directors continue to serve on boards even though a majority of shareowners voted against them. These zombie corporate overseers are protected because at most U.S. public companies, directors are elected by a plurality of votes cast rather than a majority.”
Only 5% of directors who fail to receive a majority vote for election leave the boards, according to a study of majority withhold votes for 175 director nominees at Russell 3000 companies between July 1, 2009, and last June 30. The study, released in August, was done by Governance Holdings' GMI Ratings and Investor Responsibility Research Center Institute.
More than 70% of companies in the S&P 500 stock index have majority-vote standards to elect directors, up from 16% in 2006, according to the CII letter to Mr. Sparks.
Amy Borrus, CII deputy director, said CII hasn't received any response.
Mr. Monhait, an attorney with Rosenthal, Monhait & Goddess, said he has no timeframe for responding to the appeal.
Mr. Sparks, an attorney with Morris, Nichols, Arsht & Tunnell, couldn't be reached.