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Do Board Members Pay Attention When Investors Vote No?

6/13/2005 --
This and other asset management and governance topics highlighted the recent Mitsui Life Symposium on Financial Markets.

ANN ARBOR, Mich.—Retaining a seat as director of a corporate board can be as easy as earning one vote in your favor—causing many critics to draw the comparison between corporate elections and those held by Communist nations.

Shareholders' legal rights to elect their representatives are at the core of their ability to protect their financial interests. Yet in practice, shareholders cannot legally remove a director who fails to act in their interests. And because directors generally run unopposed, a shareholder can't "vote against" a director, but can only "withhold their authority" to vote in favor.

This delicate balance is the central topic of a paper that was presented at the 10th annual Mitsui Life Symposium on Financial Markets held June 3-4 at Michigan's Ross School of Business. Over the course of the two-day conference, "Institutional Investors: Issues in Asset Management and Governance," 12 papers were presented and discussions were held in the area of delegated portfolio management.

Researchers Diane Del Guercio of the University of Oregon and Laura Wallis and Tracie Woidtke of the University of Tennessee discussed their paper "Do Board Members Pay Attention When Institutional Investors 'Just Vote No?'"

They found that when "vote no" campaigns are waged, boards listen as shareholders are sending a strong message of dissatisfaction. They offer the example of the public spectacle associated with the 2004 annual meeting at Walt Disney Co. Shareholders initiated a "vote no" campaign against CEO Michael Eisner and presiding director George Mitchell, which resulted in 45 percent of votes withheld from Eisner and 25 percent from Mitchell. Eisner resigned as board chairman the following day.

"Overall, we find no association between board, governance or performance improvements and vote no campaigns," Del Guercio said. "Instead, we find that firms targeted by 'vote no' campaigns are more likely to add management-friendly charter provisions and takeover defenses, suggesting that these firms feel threatened by the campaigns and negative publicity."

Noted finance professor Martin Gruber of New York University delivered this year's Mitsui Symposium keynote address. Gruber is an authority on portfolio management and recently served as president of the American Finance Association.

Conference organizers included Ross School professors Amy Dittmar, Han Kim, Vikram Nanda, Clemens Sialm and Lu Zheng.


Written by Nancy Davis

For more information, contact:
Bernie DeGroat
Phone:(734) 936-1015 or 647-1847
Email:bernied@umich.edu