Majority Voting for the Election of Directors

Abstract:     
We explore the theory, law, and practice of the shift by public companies from a plurality voting standard for the election of directors to a majority voting standard, an emerging governance reform sweeping corporate America. Although not mandated by law, as of October 2006, more than 250 public companies, including at least 36% of S&P 500 companies and 31% of Fortune 500 companies, had implemented some form of majority voting. After analyzing the forms of majority voting implemented by these companies, we conclude that majority voting, as put into action, is little more than smoke and mirrors. We then report our findings from an event study we undertook to test our "smoke and mirrors" hypothesis. Specifically, we examined stock price movements of firms around announcements that they have or will adopt some form of majority voting. Consistent with our hypothesis, we found no statistically significant market reaction.

Number of Pages in PDF File: 52

Keywords: majority voting, majority vote, director elections, board elections, plurality voting, plurality plus

JEL Classification: G3, G34, K2, K22

working papers series