"The prevalence of majority-vote standards is much less at smaller companies, but that will change once it becomes a standard among S&P 500 firms," said Carol Bowie, director of the governance institute at RiskMetrics. She added that the number of proposals for 2010 may be misleading because, in many cases, corporations have agreed to set up majority-vote bylaws after investors privately pressed corporate executives to install them.
"There was increased engagement behind the scenes," Bowie said.
An Issue On Capitol Hill
Currently, shareholders can only target companies on a case-by-case basis to adopt majority-vote bylaws. However, a sweeping banking-reform bill under consideration in the Senate would require all U.S. corporations to adopt majority-vote standards.
Bowie says that relatively few shareholder proposals for the standard have surfaced this year, in part because many of its advocates have spent much of their time lately pressing for it on Capitol Hill.
There are other major factors affecting behind-the-scene decision-making at corporations under pressure from investors to install majority-vote policies in 2010. In January, a Securities and Exchange Commission rule went into effect prohibiting brokers from casting director-election votes on behalf of investors who don't vote themselves. This will make a big difference in many "just vote no" campaigns, especially at companies that have set up majority-vote bylaws.
Most retail investors don't vote in director elections. It's common for brokerages that hold these shares for investors to vote the uninstructed stake known as "broker-non-votes" for the management-backed director slate.
These undirected votes are often compared to ballot stuffing. Eliminating them can have a major impact on "just vote no" campaigns to oust CEOs from boards, because the removal of these uninstructed votes can shed light on the true extent of a shareholder group's vote of no-confidence in a particular management-backed director.
In a letter to the board at Bank of America Corp. (BAC) last April, a group of unions argued that a significant chunk of votes cast at the bank's shareholders meeting were "broker non-votes," based on previous year trends.
A "just vote no campaign" engineered at the bank last year by labor-backed Change to Win Investment Group to remove then-Chief Executive Ken Lewis and two other directors from the board took on greater significance because the bank had previously adopted the majority-vote rule. Even though the campaign failed to garner a majority vote opposing any of the three candidates, the effort helped hasten Lewis' departure at the end of the year.