Yahoo Finance Snubbed By Holders, Directors Keep Posts
Shareholders were busy this proxy season, forcing changes in executive-pay practices at some companies and passing the first-ever resolution at a big corporation that would let larger investors list rival director candidates on official company ballots.
But at a handful of companies, shareholder wishes about board members were ignored. The reason: plurality voting rules.
Under majority voting rules, directors typically need an affirmative vote of more than 50% of the shares voted at a company's annual meeting. Under plurality rules, all of the top vote getters are elected, no matter how few "for" votes they get, so long as there are no alternative nominees with a more favorable tally.
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Using data from corporate-governance research firm GMI Ratings, The Wall Street Journal has identified 15 directors at 11 companies—including Sirius XM Radio Inc. (SIRI) and Brookdale Senior Living Inc. (BKD)—whom shareholders have voted against, often overwhelmingly, in the past three years, but who continue to serve on their respective boards, thanks to voting rules.
Plurality voting is "basically a Soviet-style election," said Robert McCormick, chief policy officer at proxy adviser Glass Lewis & Co. "You can vote against the person," he said, "but they'll still be elected."
That isn't always the end of the story. The Journal analysis found several directors at companies with plurality rules, though none of the 15 cited, who stepped down or said they wouldn't stand for re-election within days or weeks of being voted down by shareholders.
Companies with plurality rules are becoming increasingly rare. As recently as 2001, every company in the Standard & Poor's 500-stock index used standard plurality voting. Now, 79% have majority voting and another 10% have plurality rules that require directors to resign if they fail to win majority support, according to Paul Hodgson, senior research associate at GMI.
Many big institutional shareholders, like banks and pension funds, will automatically vote against a director who doesn't show up for at least 75% of the board and committee meetings he is expected to attend. Companies must disclose when a director's attendance fell short of that threshold in the prior fiscal year.
Last month, Leon Black, founder and chief executive of Apollo Global Management (APO), was re-elected to the board of Sirius XM Radio, even though shareholders voted against him by a nearly 2-to-1 margin. Proxy advisers and investors mobilized against Mr. Black because of his recent history of missing board meetings. It was the second time in three years that the longtime director was re-elected to the Sirius board because the nominees ran unopposed, meaning no other candidates could receive more-favorable votes.
Through an Apollo spokesman, Mr. Black declined to comment.
There are "so many things that Leon has done for us and our shareholders," said Sirius CEO Mel Karmazin, including financial, operational and strategic advice and the signing of new radio acts. The contract that brought Sirius Howard Stern, one of its most valuable personalities, was signed in Mr. Black's apartment, Mr. Karmazin said.
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He added that Mr. Black also helped connect Sirius with Liberty Media Corp. (LMCA) when Sirius was looking to avoid bankruptcy, and now is advising Sirius on its relationship with Liberty. On Monday, Sirius urged the Federal Communications Commission to reject Liberty Media's latest application to take effective control of the satellite-radio operator. Liberty owns nearly half of Sirius, as a result of loans it made in 2009 to keep it afloat.
Another director with subpar board attendance is Wesley Edens, chairman of Brookdale Senior Living, who in 2011 was re-elected to a three-year term, even though a majority of shareholder votes were withheld from him. In securities filings, Brookdale said Mr. Edens, founder of Fortress Investment Group LLC (FIG), had a representative attend meetings for him.
A Fortress spokesman declined to comment on Mr. Eden's behalf.
Fortress, which took Brookdale public in 2005, remains its largest shareholder. Its stake currently entitles it to two board seats, but the deal between the two companies doesn't require that Mr. Edens, who is chairman at four other companies and a director at five more, be one of the Fortress designees.
In a statement, Brookdale said its board takes corporate governance seriously and its nominating and governance committee, which reviews its practices "continually," is "currently studying majority voting."
Texas Capital Bancshares Inc. (TCBI) co-founder Joseph Grant also had a majority of votes withheld from him at the banking company's May meeting. For more than 13 years since founding the company, Mr. Grant "never failed to attend a board meeting" before personal reasons caused him to fall below the 75% threshold by one meeting last year, said TCB Chief Financial Officer Peter Bartholow.
Mr. Grant couldn't be reached for comment.
Mr. Bartholow said he doesn't know exactly what kept Mr. Grant away from board meetings, and blamed the negative shareholder vote on having 95% of TCB's stock in the hands of institutional investors, who are more likely to vote against a director based on attendance alone.
Last July, Jonathan Ward was appointed to the United Stationers Inc. (USTR) board, but most shareholders withheld their votes from him in his first election at last month's annual meeting after he fell short of the attendance threshold. The company has said in filings that it knew of prior commitments that would cause him to miss meetings last year, and it doesn't expect "any impediments" to his regular attendance in the future.
Mr. Ward couldn't be reached for comment.
For some directors identified by the Journal's analysis, attendance wasn't the issue. Internet company United Online Inc.'s (UNTD) has two sitting directors who didn't win a majority of shareholder votes, as does discount retail chain Fred's Inc. (FRED) Omega Protein Corp. (OME) has three directors from which the majority of shareholders withheld their votes in 2010, the last time the trio was up for re-election.
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Companies with one director who continues to serve despite failing to receive a majority of "for" votes include Boston Beer Co. (SAM), Loral Space & Communications Inc. (LORL), Athenahealth Inc. (ATHN) and CSG Systems International Inc. (CSGS).
Glass Lewis recommends withholding votes from directors for any of several reasons. For example, it thinks sitting CFOs, because of their role as financial overseers, should be reporting to the board, not serving on it. The firm also says former company executives shouldn't sit on nominating and governance committees, which should consist solely of independent directors.
Other factors that could lead to a recommendation against a director include his being on the audit committee during a period for which the company restated earnings or its internal controls were otherwise shown to be weak; not presenting auditors to shareholders annually for ratification; and forcing through a shareholder rights antitakeover plan without a vote.
Disfavored Directors
A selection of board members, by company, who didn't win shareholders' majority support.
Leon Black, Sirius XM Radio
Wesley Edens, Brookdale Senior Living
Joseph Grant, Texas Capital Bancshares
Jonathan Ward, United Stationers
—GMI Ratings and WSJ research
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