Check your knowledge of Board elections
Getting on board with the who, what, and why of a director election proposal.
What is a Board election proposal?
At a company’s AGM, it will ask its shareholders to elect its Board of directors in the form of a management proposals. Shareholders can choose to vote in favour, against, or sometimes abstain from voting for each individual director candidate.
This could be a full Board election, which is where every director will retire and go up for re-election, or it could be for only a proportion of the Board.
The proposal will often disclose:
- A bio of each director’s experience.
- The length a director will serve on the Board before retirement or re-election.
- The company’s Board diversity.
Who’s on the Board
Now we know what a Board election is, let’s look at the key members that shareholders will be voting on. It’s worth remembering that companies can choose who sits on the Board, so not all Boards will look like this.
Chair of the Board oversees the CEO and leads management. They can be executive (an employee of the company) or non-executive (not an employee). If they are executive, they are not independent and will have a more active role in running the company. If they are non-executive they still oversee the Board, but do not get as involved in the company.
Executive Director is a director that is also an employee of a company. They typically hold management positions, for example the CEO (Chief Executive Officer), CFO (Chief Financial Officer) and COO (Chief Operations Officer).
Non-Executive Director is not a full-time employee or executive at the company, and are likely to bring useful external perspectives
Independent Director is chosen from outside of the company and is considered to be more objective, improving corporate credibility. According to the New York Stock Exchange (NYSE), independent directors must comprise the majority of the board.
Lead Independent Director oversees and guides the activities of the other independent directors. If the Chair is not independent, especially when the roles of CEO and Chair are combined, the LID provides an independent countervail and acts as an intermediary between the Board and its shareholders.
Committee Heads are in charge of the Board Committees, for example the Head of Remuneration leads the committee that decides the company’s pay policy. They will determine the performance targets for bonuses and the overall pay package for executive directors.
Why is this important?
Shareholders vote on Board elections to ensure the right people are overseeing the company’s direction. For example, if they are not happy with the CEO pay package, they may vote against the Head of the Remuneration Committee.
According to the PwC Boardroom recap, the Russell 3000 companies have experienced an increase in shareholder opposition to their director candidates this AGM season.
In 2022, the average opposition for the Head of the Remuneration Committee at S&P 500 companies reached 7.3%. In 2017, opposition stood at only 3.8%.
This disapproval can be seen across the board, with a rise in opposition to independent Board leaders and the nominating and governance Chairs too.
Shareholders voting on Board election proposals can apply pressure and encourage businesses to work on their governance practices.
