The Shift from Plurality to Majority Voting in North America (1/3)

The story here is a very dramatic one. There were the 12 directors proposed by Exxon for the 2021 Board of Directors. There are some absolutely outstanding nominees, the Chair and CEO of Merck, the Chair and CEO of State Street, the former Chair and CEO of IBM.

Now this is no off-the-street kind of gathering of casual observers. These are very prominent individuals in the world of corporate governance and management of large American S&P 500 corporations, and against them, this little company called Engine Number 1, was, out of nowhere, proposing four other candidates. The Engine Number 1 candidates as well are hugely recognized in the field of energy, but more predominantly in alternative energy. They were nevertheless each and every one of them thoroughly capable of taking on directorial responsibilities at Exxon.

Exxon’s response to the Engine Number 1’s proposals: vote the blue proxy card today, support your Exxon board nominees by signing, dating, and returning the blue proxy card in the postage paid envelope provided. 

The Board urges you not to sign or return the white proxy card sent to you.

The white proxy card was the card with the Engine Number 1 candidates on it.

This was a hugely contested proxy contest. Exxon reportedly spent $35 million trying to entice its shareholders to vote for the blue proxy card with their nominees. And surprisingly Engine Number 1, a never before heard of activist fund, spent $15 million from its own pockets.

The result, May 26, was earth shattering:

  • Steven Kandarian, former chairman of the board, President and CEO of MetLife, not elected.
  • Samuel Palmisano, former chairman of the board, President and CEO of IBM not elected.
  • Wan Zulkiflee, the former President and CEO of Petronas not elected

And in their place Gregory Goff, Kaisa Hietala and Alexander Karsner all elected from the white proxy card.

Quite astonishing. 

All three defeated Exxon candidates for the board weren’t able to gain a majority of votes in this first past the post competition. The outcome was a completely revolutionary result in corporate governance in North America.

Back in 2002 there were still a few companies who used slate voting to elect Directors to the Board.

You didn’t even know who they were, the proxy simply invited you to vote for the slate – all or none.

The next phase was to migrate to voting for individual directors. This was heavily promoted by the newly formed Canadian Coalition for Corporate Governance (CCGG) and organisation created by Claude Lamoureux of the Ontario Teachers’ Pension Plan, Stephen Jarislowsky of his own asset management firm, and Michael Wilson a former federal Finance Minister and serving, at the time, as Chair of Barclays Bank in Canada (in full transparency, I was the first Managing Director of the CCGG).

But there was yet another twist. The proxy offered you the choice of voting “FOR” a particular candidate or “WITHHOLD” your support for the candidate. A “WITHHOLD” vote was exactly that- you withhold your support you don’t vote “AGAINST”. So, one “FOR” vote equals elected no matter how many votes were withheld. 

This approach is called plurality voting.

Plurality voting is kind of a communist system: Vote for the directors we propose or don’t vote. It doesn’t matter because they’re all going to get in. The CCGG under Claude Lamoureux, Stephen Jarislowsky and Michael Wilson, began to move very rapidly against this approach to proxy voting.

Interestingly, Canada and the USA are the only two countries in a world of 120 stock markets, where that withholding approach is allowed.

The CCGG wanted to have a “WITHHOLD” vote count as a “NO” vote; a system called majority voting. Today, majority voting is now the case in 90% of the S&P and in Canada universally adopted as now required by the TSX (2014). And changes are being made to the Canada Business Corporations Act that will enshrine in law the necessity on your proxy statement to have “for” or “against”. 

Nonetheless, practically speaking in both Canada and the United States, we’ve moved to majority voting.

So, from slate to individual elections.

Then from plurality voting to majority voting.

Read the second article here.

David R. Beatty, C.M., O.B.E., is Academic Director of the David and Sharon Johnston Centre for Corporate Governance Innovation at the Rotman School of Management. Currently, he serves as a Director of publicly-traded McEwan Copper and the private Bon Intelligence. Over his career he has served on over 40 boards and has been Chair of eight publicly-traded companies. He was the founding Managing Director of the Canadian Coalition for Good Governance (2003-2008) and is a founder of the Directors’ Education Program.