Majority Voting: A Paper Tiger?

There has been a tetonic shift for corporations to move from Plurality Voting (where a director can be elected with a single vote) to Majority Voting (where a director not receiving at least 50% of the vote faces repercussions).  In the past few years the number of S&P firms with Majority Voting has risen from 16% to over 67%.  But does this shift have any real effect on how directors are elected?  In the article below, published in the Journal of Corporate Finance we argue that Majority Voting is a Paper Tiger, without great impact in the current boardroom dynamic.  The abstract is below:

A Paper Tiger? An Empirical Analysis of Majority Voting

Jie Cai 

Drexel University

Jacqueline L. Garner 

Mississippi State University - Department of Finance and Economics

Ralph A. Walkling 

Drexel University - Lebow College of Business

December 16, 2012

Journal of Corporate Finance, Vol. 21, 2013 

Abstract:      

Majority voting in board elections has emerged as a dominant theme in recent proxy seasons. Analysis of majority voting is important: first, the impact is controversial yet scant empirical evidence exists. Second, Congress is still considering mandating this practice. Third, there has been a tectonic shift in adoptions of majority voting, from 16% to over 67% of S&P 500 firms in just two years. Fourth, the vast majority of shareholder proposals for majority voting are sponsored by unions with little shareholdings. Proponents argue that majority voting aligns shareholder-director interests. Opponents argue that the practice will be disruptive and could result in the failure of boards to meet exchange and SEC requirements. Others assert that majority voting is a paper tiger, amounting to form over substance, particularly since many adoptions are non-binding. We provide an empirical analysis of the wealth effects, characteristics, and efficacy of majority voting. Our results are consistent with the paper tiger hypothesis.

The complete paper may be downloaded here.