Changing Voting Standards Start to Threaten Corporate Directors

"Although directors who fail to receive majority votes still overwhelmingly serve on corporate boards, the seeds of change are taking root," Jon Lukomnik, IRRCi's executive director, said in a statement.

"This study suggests that withhold votes signal a larger pattern of shareholder dissatisfaction with a company," Lukomnik said. "Withhold votes are not just the product of 'check the box' voting by investors upset with a technical violation of standard governance practices."

Indeed, it would be a mistake to dismiss majority withhold votes because they are rare, Kimberly Gladman, the study's lead author, said in the statement. "These votes often are a means for shareholders to express key concerns about board oversight, and public companies should take them seriously."

Other key findings:

• Eighteen percent of majority withhold votes occurred at companies where there was evidence of shareholder dissatisfaction not only with the director in question but with the board or company as a whole.
• More than 80% of majority withhold votes took place at Russell 2000 smaller-cap companies, which made up two-thirds of the study sample.
• Ninety-one percent of majority withhold votes occurred at companies without majority election standards—in part reflecting that smaller U.S. companies are less likely than their larger-cap peers to have adopted either majority or plurality plus resignation election standards.
• Eighty-seven percent of companies that received majority withhold votes did not disclose their boards' processes for responding to them, whereas all companies with majority or plurality plus resignation election standards made some disclosure about their response to the votes.