Majority Voting Goes Mainstream

New study finds that more than half of the S&P 500 have adopted some form of the process, and that the trend has tilted from non-binding policies toward binding by-law amendments.

A majority of the Standard & Poor’s 500 have implemented some form of majority-voting process for approving directors in uncontested elections, according to an exhaustive study by Claudia Allen of Chicago law firm Neal, Gerber & Eisenberg.

Last February, Allen noted, that was true for less than 20 percent of the S&P 500. “The rate of change is striking, given that majority voting is not mandated by law or stock exchange listing standards,” observed the study.

“In many respects,” the study elaborated, “the debate over majority voting is moving from the issue of whether it constitutes an advisable governance practice, to the substance and form of majority voting provisions and how this relatively new tool will be used.”

Initially, Allen pointed out, companies seemed inclined only to adopt non-binding policies, but since September 2006 the trend has tilted toward binding by-law amendments. Of the 371 companies analyzed in the study:

• 201, or 54 percent, have simply adopted a majority-vote policy, compared with 79 percent in February 2006
• 103, or 28 percent, have adopted by-laws, compared with 16 percent a year ago
• 67, or 18 percent, adopted both a policy and by-laws, compared with only 5 percent last year

Allen named a number of companies, such as Chevron, General Dynamics, Hewlett-Packard, Marsh & McLennan, Raytheon, and Wells Fargo, that had previously adopted a policy but recently adopted true majority-vote by-laws.

A second group, which had previously adopted policies or by-laws that “were functionally policies” — Allen named Aetna, Capital One Financial, Chubb, General Electric, H.J. Heinz, PerkinElmer, PitneyBowes, UnitedHealth Group, Walt Disney, and WellPoint — are putting majority-vote charter provisions or true majority-vote by-law provisions to a shareholder vote at their 2007 annual meetings.

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