Legislation to Spur Majority Vote

Lawmakers in Delaware, where most U.S. companies are incorporated, have amended the state's General Corporation Law (DCGL) to facilitate majority voting in director elections, but they stopped short of switching the law's default standard from plurality to majority.
The legislation, which goes into effect Aug. 1, makes clear that director resignation policies--which have been adopted by pharmaceutical giant Pfizer and more than 100 other firms--are enforceable under Delaware law. The new law also mandates that directors cannot overturn or alter shareholder-approved bylaw amendments that spell out vote requirements in director elections.
While investors advocating for majority voting welcome the amendments, the legislation falls short of their demands to change the default standard in uncontested board elections. Moreover, some governance analysts question the overall efficacy of the amendments to give shareholders a greater say in the boardroom.
With Delaware behind them, proponents of majority voting are now focusing on legislative efforts in Sacramento to create a default majority vote standard. A bill to do just that for all companies incorporated in California is now moving ahead in that state's legislature.
ABA Model Act Revision Endorses Resignations
Last month, the American Bar Association officially amended the Model Business Corporation Act, which is the basis for the corporate laws in most U.S. states, to include a provision for ousting a director in 90 days or fewer if he or she receives more than a 50 percent withhold vote. That provision is similar to the resignation policies in place at Pfizer and other firms, but it standardizes the 90-day window for replacing directors.
The moves by the ABA and Delaware lawmakers won't stop activists from pushing for deeper board election reforms, governance analysts say, leading many to predict growing investor support for such proposals later this year and next.