Majority Voting in Director Elections: A Simple, Direct, and Swift Solution?

Abstract

The shareholder franchise has often been described as a fundamental element of the corporate structure. Although shareholders are the “owners” of the corporation, their ability to control corporate affairs is indirect. Shareholders have long lacked a meaningful voice in director elections. Legal and practical impediments have combined to ensure that shareholders are presented with only a single choice in the vast majority of elections: the candidate selected by the board. Shareholders may vote for the board’s nominee or withhold their votes in a symbolic show of discontent; in either case, however, the incumbent is assured reelection regardless of how many shareholders stand opposed to him or her. Beginning in 2004, the majority voting movement set out to change this dynamic by empowering shareholders to oust directors that receive more votes “against” than “for” their election. Majority voting is a seemingly simple reform, and the corporate community has been unable to raise plausible objections to it—at least as a matter of principle. For this reason, activist shareholders have been able to persuade a substantial number of corporations to adopt majority voting, often on a voluntary basis. The unanticipated consequences of interjecting majority voting into director elections, however, have required the enactment of compromise provisions that bring majority voting’s simplicity and viability into question. This Note argues that difficulties inherent in formulating a workable majority voting standard have produced reform that is largely hollow and may prove counterproductive. The Note concludes by suggesting that reform directed at the underlying proxy system would serve shareholders more effectively than the interjection of majority voting into director elections.