An April 14 Business article about corporate elections of boards of directors incorrectly described The Washington Post Co.'s requirements for electing members of the board. Directors are elected by a plurality, not a majority.
A Battle Over the Boardroom
Friday, April 14, 2006
For decades, the selection process for corporate boards of directors has had more in common with a Soviet-style system than with an American-style election.
Most public companies nominated only as many candidates as there were open slots, and there was virtually no way to block an anointed candidate. Though shareholders could withhold votes in protest, as long as the candidate got a plurality of the votes cast -- even if by a single vote -- he or she was elected.
But now, the winds of change are blowing.
Led by several activist unions, shareholders at dozens of companies are pushing rule changes that would allow them to vote for or against each director and require that directors receive a majority of the votes cast.
The United Brotherhood of Carpenters and Joiners of America and its allies have taken advantage of Securities and Exchange Commission rules that allow shareholders who hold at least $2,000 in stock for a year to submit governance proposals to push more than 140 companies to adopt majority voting. Most of the proposals would not automatically force out losing directors -- under most state laws, "holdover" directors who fail to win reelection may continue serving until their replacements are named.
The goal is to make directors more directly accountable to shareholders, rather than corporate management. Shareholder activists say they hope more accountability will help protect against excessive executive compensation and corporate fraud.
"When every director knows they have a hurdle -- they have to get a majority of the votes cast -- it will help focus the directors," said Ed Durkin, director of corporate affairs for the United Brotherhood of Carpenters and Joiners. "It may not lead to dozens and dozens of directors being thrown out, but we think it will improve the operation of all boards."
Some local companies -- including Gannett Co. and Pepco Holdings Inc. -- have adopted the suggestion this year without putting it to a shareholder vote. Rockville-based Federal Realty Investment Trust's management adopted majority vote this winter after a 2005 shareholder vote fell short of the margin required for approval.
District-based Marriot International Inc. fought a majority-vote proposal from the Sheet Metal Workers National Pension Fund last year, and it was defeated by a 61 to 39 percent vote. But the hotel chain has changed its tune and is now recommending that shareholders vote in favor of the identical majority-vote standard at its April 28 annual meeting.
"The clear trend in corporate governance is toward greater and greater adoption of the majority vote standard for uncontested elections," the company said on its proxy ballot. "The majority vote standard provides for enhanced director accountability to the shareholders and avoids potentially undemocratic results."
The Washington Post Co. has a majority-vote policy and has not changed it in recent years, said spokeswoman Rima Calderon. However, the Class A shares, which are held by a small number of investors including the Graham family, elect 70 percent of the directors, while the publicly traded Class B shares elect 30 percent.
But other local companies have fought the carpenters' proposals. In December, Capital One Inc.'s board adopted a halfway measure -- if more shareholders voted to "withhold" than voted for a sitting director, he or she would have to offer to resign. The board would then decide what to do next.