Trend Watch: How are Directors Elected?

Voting systems to elect corporate directors vary along two major dimensions. First, shareholders can be offered either a) an entire slate of candidates, who stand or fall together, or b) a list of individual candidates, each of whom stands or falls on his or her own merits. Individual director voting empowers the shareholders to indicate which directors they are happy with instead of just voting for the whole board of directors

Secondly, there is the distinction between ‘plurality’ and ‘majority’ voting. Under the plurality system, each shareholder has the option of either voting for or instead withholding approval from, those directors. Withholding doesn’t technically count as a vote against. But if anyone — even a single shareholder — votes “yes”, then the directors are successfully elected. Under the competing majority voting system, directors need to receive 50% of votes +1 in order to be elected. The latter is generally considered preferable by governance advocates. The Canadian Coalition for Good Governance has been at the forefront and have championed Majority Voting. Here are the CCGG’s Majority Voting Guidelines.

Our research here at the Clarkson Centre shows the trends along both of those dimensions.

First, here’s what our data show regarding the trend from slate voting towards individual director voting:
The prevalence of slate voting has been on a steady decline since 2004, and it’s particularly obvious in the trend shown since 2006. Currently, only about 14% of the companies on the S&P/TSX Composite use a Slate vote for director elections.

Next, here’s what we’ve seen in terms of the trend from plurality to majority voting:
Majority voting adoption of the Corporations on the S&P/TSX Composite has more than doubled over the last 4 years.

For an example that illustrates the struggle to implement best practices in this area, see this recent story, from the Globe and Mail: Linamar board gets the message, finally.