A Battle Over the Boardroom

The company is now recommending that shareholders vote against the carpenters' proposal at its April 27 annual meeting in Tysons Corner, saying in its proxy that majority voting would require the "significant, costly and possibly premature step of" changing its certificate of incorporation.

Ciena Corp. of Linthicum followed a similar strategy and said in its proxy that it was concerned about the "ambiguity and uncertainty" that might follow if a director failed to gain election. The networking firm's shareholders voted down the proposal 69 percent to 31 percent in mid-March.

Some companies have opposed majority-vote standards if they do not make an exception for contested elections because they might end up short a board member.

Still, the idea of majority voting appears to be taking hold very quickly. The carpenters and their allies first floated the proposal in 2004, when it appeared on 12 proxy statements and garnered an average of 12 percent of shares cast. The issue came up at 80 companies last year and made it onto shareholder ballots at 62 of them, said Patrick McGurn, executive vice president of Institutional Shareholder Services, which analyzes proxy issues for large investors. Overall, the 2005 proposals drew 42 percent positive votes on average, and 17 of the proposals passed outright.

McGurn said he expects that the proposals could do even better this year, given the number of companies that have already agreed to adopt majority voting .

About 26 percent of the companies that make up the Standard & Poor's 500-stock index require directors to get a majority of the votes cast, according to a study by Claudia Allen, who chairs the corporate governance practice group at the Chicago law firm Neal, Gerber & Eisenberg LLP. The unions "have had unexpected traction," Allen said. "What they are saying makes sense to people on a visceral level. Most boards have not been very accountable, and from the point of view of some shareholders, that's not good."

The plurality system isn't all that old. Until the 1970s and 1980s, most companies required directors to be elected by a majority vote. But concern grew that chaos might result if a majority of a company's directors were not reelected, so state laws began allowing a plurality standard and also included the holdover rule that allows a director who fails to obtain the required vote to continue serving at the pleasure of the rest of the board.

Now the pendulum is swinging back. But corporate governance experts say it's not at all clear whether a majority-vote standard will have much impact -- most directors receive upwards of 95 percent of the vote in uncontested elections. "It's a feel-good thing," said Joe Goodwin, a corporate governance consultant who specializes in director recruiting. "It's a nice PR move on the part of boards and a way for the unions to go to their constituents and say we can put this one in the 'W' column for us."

But advocates say the majority-vote standard could matter more if the SEC follows through on Chairman Christopher Cox's proposal for more disclosure of corporate perks and salaries. "Ultimately, our power to restrain executive pay is through votes against compensation committees and chairmen of comp committees, and now the votes have teeth," said Richard Ferlauto, director of pension and benefits policy for the American Federation of State, County Municipal Employees. "It's not the Holy Grail of shareholder nomination of directors, but it's a good first step."