An ISS news release said that under a majority voting system, a director nominee is required to receive support from a majority of the votes cast in order to be elected or re-elected to the board. The failure of a nominee to receive majority support would necessitate action by the board.
Under the US proxy voting structure, ISS said, a plurality vote is the default standard in the election of the board of directors. Under that system, a board-backed nominee in an uncontested election needs to receive only a single affirmative vote to claim his or her seat. Even if holders of a substantial majority of the shares withhold support for an individual, the director nominee still wins the seat, the ISS news release said.
The announcement by the Rockville, Maryland-based ISS said that the arguments against a majority vote requirement also raise substantive issues, including the potential to create sudden vacancies on a company’s board.
ISS warned that “chances for the director nomination proposal grow dimmer at the US Securities and Exchange Commission (SEC),” but that shareholder support for such a move is growing. Declared ISS in the announcement: “Majority voting increasingly is being seen as the last measure still standing in the drive to reform director elections.”
Dr. Martha Carter, ISS director of U.S. Research, said a majority voting system would help increase shareholder influence in the boardroom.
“Director accountability is the hallmark of good governance,” said Carter in the news release. “The board election process must ensure that shareholders’ expressions of dissatisfaction with the performance of directors have meaningful consequences. A majority vote standard transforms the director election process from a symbolic gesture to a meaningful voice for shareholders.”