CORPORATE GOVERNANCE

Shareholder proposals classified as “corporate governance” involve classic corporate-law questions such as shareholder voting rights and board structure. Examples of commonly submitted corporate-governance proposals over the time period covered in the Proxy Monitor database are proposals that would:

• Mandate that separate individuals serve as board chairman and chief executive officer;
• Adopt majority-voting rules for director elections; and
• Authorize shareholders to call for special elections outside the annual meeting process.

Corporate-governance proposals have been more likely to pass shareholder votes than other proposals included in the Proxy Monitor database.

Supporters of voting-rules proposals tend to argue that certain procedural rules can impede shareholder rights. Critics argue that variation in voting rules may be necessary to preserve long-term corporate interests.

Supporters of corporate-governance-structure proposals argue that certain corporate structures help to protect shareholders’ interests. Critics assert that one-size-fits-all notions of corporate-governance structure are inappropriate because the preferred governance mechanism (such as the separation of chairman and CEO function) can vary according to industry, company life cycle, or circumstance.

To learn more about corporate governance, please visit our references page.

SUBCATEGORIES

• Voting Rules—Corporate governance proposals involving voting rules encompass measures aimed at changing the voting requirements for the election of directors or for the passage of different types of proposals. Typical proposals include:

“Cumulative Voting” —Proposals calling for cumulative voting would enable shareholders to aggregate their votes for director behind a limited number of candidates, or even a single candidate. In other words, if there are 10 directors up for election, a holder of a single share could cast 10 director votes behind a single individual, rather than voting for 10 separate nominees.  
“Majority Vote Standard for Director Elections”—These proposals require that any director must receive a majority of the shares voting to be elected to the board. (Traditionally, directors are elected with only a plurality of votes cast.)  
“Simple Majority Voting” —Some proposals apply a majority voting standard to the passage of shareholder proposals, including changes to the companies’ by-laws, rather than merely for direction elections. In contrast to majority voting for directors—which raises the voting threshold for shareholders from a plurality standard—these proposals are intended to lower the voting threshold in companies that have supermajority vote requirements for certain types of proposals, such as those that involve a by-law change. 

• Separation of Chairman and CEO—These proposals require companies to have separate individuals serving in the positions of chairman and chief executive officer; i.e., the chairman of the board of directors would have to be chosen from among the independent directors on the board, and could not be the company’s CEO.



• Declassify the Board—Some companies, rather than having all directors stand for election each year, have “staggered” boards in which different classes of directors are elected to multiyear terms. Typically, companies with classified boards have three classes, with each class up for election every third year. Proposals to declassify the board would require a shareholder vote for each director annually. 



• Special Meetings—These proposals seek to grant shareholders of a significant percentage of stock—usually from 10 to 25 percent—and the ability to call special shareholder meetings held in between the annual shareholder meetings. Shareholders are usually permitted to combine their holdings for these purposes. Some of these proposals call upon companies that already have special-meeting voting rules to lower the threshold of stock ownership required to call such meetings, e.g., from 25 to 10 percent.



• Written Consent—Like proposals permitting shareholders to call special meetings, these proposals empower shareholder action outside of pre-set annual meetings, but through the “written consent” of a majority of shareholders in lieu of a meeting. The minimum number of shareholders to authorize such actions would typically be the minimum number of those required to vote on a passing proposal in an actual meeting.



• Proxy Access—These proposals seek to grant shareholders the right, under certain conditions, to place their own nominees for director on corporate proxy statements.