Bad Director Votes Should Send a Message (2024 Proxy Voting Update)

Shareholder voting results continue to roll in as we make our way through the bulk of the annual meetings for 2024. So, we wanted to take a look at some of the larger companies where shareholders are sending a message to the board that results or governance aren’t good enough. Unfortunately for good governance and accountability, most directors are re-elected with little in the way of dissent.

For this brief look we wanted to identify companies where the average shareholder support for directors was less than 90% at this year’s annual shareholder meeting — a pretty good indicator that something is amiss. In each instance shareholders are trying to send the board a message (even if not always as strongly as we’d like to see) and the question is, will they listen?

Highlights

• Staggered boards continue to protect bad boards and their directors. Cognex (CGNX), ZoomInfo Technologies (ZI), Paycom Software (PAYC), Liberty Global (LBTYA), Five9 (FIVN), plus a few others on our list, all have classified boards where directors are elected on three year cycles which means at any given vote, only a minority of directors are up for re-election. This limits the ability for shareholders — including activists — to have a big impact at an annual election and, in most cases, should be looked at as a bad governance practice. The “good governance” argument that it promotes board continuity is a red herring. If boards want continuity, then deliver results that shareholders want and that will naturally result in continued annual director re-election and the desired continuity.
• Norfolk Southern (NSC) and Ancora fought their proxy battle to a generally welcome outcome with 10 NSC directors being re-elected and 3 Ancora directors being added. Ancora will surely be disappointed that NSC CEO Alan Shaw managed to be re-elected given they had cited him as a primary factor in NSC’s underperformance.
• Good governance believers — i.e. people who believe that boards and CEOs should deliver returns for shareholders — will be most disappointed in the Boeing (BA) vote results. Yes, a meaningful amount of shareholders voted against the directors (to varying degrees), but given the company’s performance and safety issues, the fact that shareholders are giving the board any support is disappointing. Delivering only 66% support for director David L. Joyce, the chair of the Aerospace Safety committee, sends a clear signal, but one wonders if in a scenario where Mr. Joyce is an employee rather than a director, wouldn’t he have been fired? The most surprising result is soon to be ex-CEO Dave Calhoun receiving 77% support. He was on the board before being appointed, continued on during his disastrous run as CEO, and is part of the board that is allowing him to stay on in that role through the end of the year. In their press release announcing his resignation, it said “he will continue to lead Boeing through the year to complete the critical work underway to stabilize and position the company for the future.” Shareholders had a clear opportunity at the meeting to call the board on this nonsense, but for some reason chose not to.
• Danaher (DHR) saw a contingent of directors receive low support. The DHR board has a very high average tenure — 15.4 years vs 7.9 years for it’s peers — and is categorized as “entrenched.” Given the long tenures of most of the directors with lower support, shareholders would welcome the board becoming more active in its refreshment and working to identify a few new, outstanding directors to help lead the company forward as some of the longer-tenured directors roll off.
• United Parcel Service (UPS) continues to struggle and shareholders are starting to send a stronger message to the board with this year’s average support dropping from 93% in 2023 and 96% in 2022. If performance continues to lag, expect shareholders to send a big message in 2025 — and that could include an activist coming in to try to right the ship.
• A.O. Smith Corp (AOS) and Simon Property Group (SPG) both have multi-class share structures that enable more board protection. In the case of the AOS elections this year, the common stock directors were simply hammered. Despite this, because AOS elects based on a plurality of votes cast, all four directors up for election by common stock won re-election. In our view, plurality voting is another example of bad governance as it makes withheld votes worthless in an uncontested election. For example, in the extreme, if only 1 shareholder votes “FOR” and 1,000,000 vote “AGAINST”, that director will be elected to the board. Again, the argument here for “continuity” is a false one.

Recent Reads

• Weekly Activism & Executive Moves Review (May 17)
• Big Companies with Big Say-On-Pay Issues (2024 Shareholder Say-On-Pay Update)
• BIG Company Directors with LOW Shareholder Support
• CEO Pay: The $25 Million Plus Pay Club
• Despite Shareholders Losing Over 3 Years, CEO Pay is Up at These Companies
• Weekly Activism & Executive Moves Review (May 10)
• 2024 Say-On-Pay Votes: 25 Companies Where Shareholders Are Unhappy
• 2023 Say-On-Pay Winners & Losers
• Say-on-Pay Voting: What You Need to Know

Companies with Low Shareholder Support for Directors at 2024 Annual Meetings