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September 21, 2009
Shareowner Opposition to Board Nominees Increases in 2009
    by Robert Kropp

PROXY Governance finds that significant increase in votes against nominees in director elections led to failure of 84 directors at 48 companies to attain majority shareowner support.

Noting an increase in shareowner opposition to nominees for corporate boards of directors in 2009, PROXY Governance, a proxy advisory and voting firm whose recommendations are based upon such factors as the quality of corporate management and governance, found that "compensation concerns…appear to have been a primary driver behind the increasing number of shares voted in opposition in director elections," according to Scott Fenn, Senior Managing Director for Policy. In addition to concerns over executive compensation, Fenn noted a trend among large institutional investors to withhold votes from directors based on corporate governance concerns.

Data collected by PROXY Governance from director elections through August, 2009, found that at least 20% of shareowners either voted against or withheld votes from 9.8% of unopposed director nominees, a significant increase from the 5.5% recorded in 2008. Forty percent of shareowners voted against director nominees in 2.1% of cases in 2009, up from 1.0% in 2008, and majority votes against nominees tripled in 2009, to 0.6% from 0.2% in 2008.

PROXY Governance also found that 84 directors at 48 companies have failed to attain majority shareowner support in 2009.

Opposition to director candidates is expected to increase in 2010. In July, the US Securities and Exchange Commission (SEC) voted to approve a proposal from the New York Stock Exchange (NYSE) that eliminates broker discretionary voting for elections of corporate directors. According to PROXY Governance, "Because brokers control up to 20 percent of the vote at many companies and almost always vote with management’s recommendations in director elections, the new rules could result in many more directors failing to achieve majority support."

In addition, draft legislation introduced by Senator Charles Schumer of New York in May would mandate annual director elections under a majority voting system, and rule proposed by the SEC would grant shareowners access to the corporate proxy for the purpose of nominating directors.


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