Majority Voting
Proposals that seek to reform board elections remain high on shareholder agendas this year, with continued investor support for a majority voting standard.

Support for majority voting has averaged 54.7 percent at seven meetings, up from 47.7 average support in 2006, with notably high support at International Paper on May 7 (85 percent, according to news reports) and Newell Rubbermaid on May 8 (74.8 percent, according to company records). Two management-supported proposals at Wachovia and PerkinElmer both received over 98 percent support.

The number of majority vote resolutions continues to be high, even after many companies followed the example of Intel in adopting majority voting bylaws and director resignation policies. While investors have filed 140 proposals so far, what is notable this year is the significant number of withdrawals. More than 50 proposals slated for meetings in January through May have been withdrawn by proponents following discussions with companies. As was the case last year, many firms have agreed to introduce the measure at the next meeting or to change their bylaws or certificates of incorporation to provide for a majority vote.

A novel approach to majority voting has come this year in the form of requests for reincorporation to Delaware. This season, the Carpenters and the Sheet Metal Workers International Union filed reincorporation proposals at 13 Ohio companies to prod them to support legislation to repeal the state’s plurality vote requirement for board elections. One proposal has earned majority support--59.5 percent at Convergys--but at least nine of those resolutions were withdrawn following dialogue with the companies. A similar proposal won 34.9 percent support at FirstEnergy on May 15.

Proposals on cumulative voting, which averaged 39.8 percent last year, have so far won an average of 36.6 percent support over 11 meetings, with none winning a majority of votes. Support for cumulative voting proposals has remained around 40 percent on average since 2005.

Meanwhile, investors have filed two proposals to allow shareholders with at least a 3 percent stake to nominate directors to appear on corporate proxy statements. The first proposal, filed by the American Federation of State, County, and Municipal Employees and three state pension funds, received 43 percent of votes cast at Hewlett-Packard's March 14 meeting. The proposal was filed following a boardroom leak scandal that led to the resignation of two directors and board chair Patricia Dunn.

Another proxy access proposal will go to a vote May 29 at UnitedHealth, a firm plagued by allegations of options backdating and forced to restate its earnings earlier this year to reflect option expenses.

Takeover Defenses
Based on early season results, it appears that shareholders are showing greater support for proposals that target takeover defenses, such as "poison pills" (also known as "shareholder rights plans"), classified boards, supermajority requirements, and dual-class equity structures. In addition, proposals seeking the right to call special meetings have done well.

A bylaw proposal by shareholder Nick Rossi that seeks a shareholder vote on future poison pills won 72 percent at Hewlett-Packard, according to investors. In 2006, poison pill proposals averaged 55.6 percent support.

Investor William Steiner submitted a proposal at MeadWestvaco asking the company to redeem its poison pill or put it to a shareholder vote; that resolution received 79.3 percent, according to the company. At Walt Disney, investors gave 58 percent support to a novel bylaw proposal by Harvard University Professor Lucian Bebchuk that called for a 75 percent vote by independent directors to adopt or amend a pill plan.

Shareholders have continued to express strong support for proposals asking companies to do away with classified boards and hold annual elections for all directors. Six of the seven proposals--except for a 44 percent vote at Luby's--have won majority support this season, including 77 percent at McGraw-Hill and 68 percent at Fortune Brands, according to investor John Chevedden. That total doesn't include the management-supported resolution at U.S. Bancorp on April 17 that was approved with more than 98 percent support. Last year, board declassification proposals averaged 66.8 percent support.

Investor support also has increased for proposals that ask companies to eliminate super majority requirements on bylaw changes and other matters. These resolutions have averaged 72.7 percent across 12 meetings, up from 67.8 percent in 2006. That total doesn't include a 98.2 percent vote at Wachovia, where management supported the measure.

Individual or family investors have led the charge this year in asking for the right of holders of a 10 to 25 percent stake to call special meetings. At the six companies where preliminary results have been released, those proposals have averaged 64.26 percent support, according to ISS data. The highest vote so far, 72.4 percent, occurred at Honeywell, the company said.

This season has also seen increased investor scrutiny of companies with dual-class stock, which can be an insurmountable takeover defense. Shareholders are targeting companies with "A" and "B" class stock that give multiple votes per share to one share class, which is often controlled by a family or founder.

Shareholder proposals seeking to end dual-class structures won significant support from outside investors at Hovnanian Enterprises and Ford Motors, proponents said. A LongView resolution won 14 percent at Hovnanian, where insiders control 75 percent of the voting power. At Ford on May 10, a similar proposal received 27 percent support. With the Ford family controlling 40 percent of the voting power, proponent John Chevedden estimates that about 45 percent of the non-family investors supported the measure.

Morgan Stanley Investment Management filed a dual-class proposal at the New York Times Co., but the Securities and Exchange Commission allowed the company to exclude the resolution from its proxy. Instead, the Morgan Stanley fund and other investors protested the company’s equity structure by withholding 42 percent support from the four directors who are elected by outside stockholders.

Editor's note: Governance Weekly reports vote percentages based on "for" and "against" votes cast and doesn't include abstentions or broker votes. This is the same approach the SEC uses under Rule 14a-8(i)(12) to evaluate the support received by proposals in previous years. Please also note that these results are preliminary and do not include all 2007 meetings so far, because some companies have declined to release vote totals on shareholder resolutions until their next quarterly regulatory filing. Finally, the 2006 averages include only those meetings that occurred from Jan. 1 through June 30 of that year.