* Investors cool to directors at Cablevision, Vornado
* Only 6 of 48 directors without majorities departed in 2011
* Staying on makes "mockery" of shareholder wishes- critic
By Ross Kerber
BOSTON, June 20 They lost their votes, but they
have not left.
Directors at dozens of companies have taken or kept board
seats despite failing to gain majorities in shareholder
elections. Examples this proxy season include board members at
Vornado Realty Trust and Cablevision Systems Corp
As at many companies, Vornado and Cablevision bylaws allow
board members to stick around even without the endorsement of a
majority of voting shareholders.
But some corporate governance experts want directors to
quit when they face what amount to votes of no confidence.
Otherwise, they fret that the votes undermine shareholder
A company that fails to adopt stricter voting standards "is
saying loud and clear that it does not care about its
shareholders," Harvard Law School professor Jesse Fried said in
an email. "It's not surprising to see directors at many of these
firms failing to get majority support," he said.
Some corporate legal experts do not want more pressure on
directors to quit, however. They w orry failed elections can
Last fall an American Bar Association committee declined to
adopt a suggestion that would have pushed directors to win
majorities. Committee chairman Gilchrist Sparks said companies
need the flexibility to keep directors and avoid vacancies, in
order to meet exchange listing rules, for example.
"There's a whole series of reasons why you need that safety
valve," he said.
The wrangling comes during a broader debate over corporate
governance that has developed since the financial crisis, as
large shareholders press for more say in how companies are run.
For instance, in new advisory "Say on Pay" votes on
executive compensation, shareholders have rejected pay of
several high-profile leaders like that of Citigroup Inc
Chief Executive Vikram Pandit. Shareholder activists have also
won compromises like a deal in March under which Goldman Sachs
Group agreed to appoint an independent lead director.
Even tougher company voting rules don't always change the
outcome of d irector e lections. Last year, shareholders voted
against the entire board of medical equipment supplier Iris
International Inc at the urging of proxy advisor ISS.
The nine offered to resign, as required by Iris bylaws. Then
they un-did the offers, according to an Iris regulatory filing,
voting as a full board to reject the individual resignations.
Such outcomes undercut elections, according to the Council
of Institutional Investors in Washington, which represents
managers like pension funds and endowments with a combined $3
trillion in assets.
Most large U.S corporations limit who can be nominated to
company boards, meaning that elections usually lack an
Ann Yerger, the investor council's executive director, said
corporations ought to take director election r esults m ore
seriously. Co rporate leaders of ten tell big shareholders to stop
proposing policy questions on proxy ballots and just focus on
choosing directors, sh e said.
"What they neglected to say is the vote is meaningless
because companies can make a mockery of the results," she said.
Many companies operate under a "plurality voting" policy in
which candidates win by receiving the most votes rather than at
least 50 percent.
Plurality voting lowers the bar when incumbents run
unopposed. Yerger's group backs plurality voting only for
contested elections where there are more candidates than open
Otherwise, it urges directors win a majority of votes cast.
Those who cannot meet that test should leave "as soon as
practicable," with grace periods only to follow rules like
listing requirements, the Council said in a 2010 policy.
Last year, the council counted 48 directors at 35 companies
in the Russell 3000 index who did not win majorities in
uncontested elections. Of these, only six actually left. So far
this year through June 14 it counted 26 companies where
directors failed to get majority support.
It counted just one company where a director actually left
as a result: exchange operator NYSE Euronext, whose
board accepted on April 26 the resignation of Ricardo Salgado.
NYSE Euronext has adopted majority voting. Most other
companies cited by the Council have "plurality voting," so
directors were not required to leave. Cablevision, where three
directors did not get majorities and stayed, is one example.
Cablevision spokeswoman Kelly McAndrew said the three
deserved to stay. "Their independent insight, experience and
counsel make them valuable assets in serving Cablevision's Board
and shareholders," she said.
In Vornado's case, at its annual meeting on May 24, three
board members - including Chairman Steven Roth and Chief
Executive Michael Fascitelli - got less than 50 percent of votes
Proxy adviser Glass Lewis recommended shareholders withhold
their votes from all three in part since the executives did not
make changes shareholders had voted for in previous years - like
requiring majority backing in uncontested board elections.
Several board members also got less than 50 percent support
last year and they, too, remain on the board, the San Francisco
proxy adviser said in a note to shareholders. "Glass Lewis
remains deeply concerned by the company's decision to repeatedly
ignore the will of its shareholders," the firm wrote.
A Vornado representative declined to comment.
Companies can still make amends and regain shareholder
support. At Iris the 2011 vote came after proxy adviser ISS
criticized directors for adopting a "poison pill" takeover
defense. Iris then terminated the plan and its directors easily
won re-election on April 27, 2012, filings show.
Iris representatives did not return messages.