Another AFSCME binding proposal was on the ballot on April 25 at Wells Fargo. The company reported that the proposal did not pass, but the exact vote was not available by press time. Richard Ferlauto, the union's director of pension investment policy, said he expected that the proposal would get a similar level of support. Wells Fargo has adopted a director resignation policy.

"We are really pleased with the result because it shows that binding proposals [on majority elections] can pass," Ferlauto told Governance Weekly. John Keenan, a strategic analyst for the union, noted, "Given that both companies have adopted a director resignation policy to try to deflect support for this resolution, we think this is a strong result."

This week, non-binding majority vote proposals by the Carpenters and other unions fared less well at firms that have adopted a director resignation policy while retaining plurality voting in board elections. For example, the Carpenters' proposal got 33 percent of votes cast at American Express on April 24, and 40 percent support at IBM the next day, according to the companies.

Those companies adopted their policies in response to the growing investor support for majority voting resolutions, which averaged 44 percent support at more than 60 firms last year. The union proponents argue that these companies should go further and change their bylaws to provide a "true" majority standard--with "for" and "against" votes--like Intel and more than 20 firms have done.

Meanwhile, the Carpenters' proposals this week continued to win majority support at firms that have not adopted director resignation policies or other election reforms. The union's proposal won 61 percent at Kohl's, 59 percent at Textron, 56 percent at Bank of America, and passed at Wyeth, according to the companies. A similar proposal by the Sheet Metal Workers National Pension Fund at Weyerhaeuser received 55 percent support on April 20.

At Marriott International's April 28 annual meeting, management is supporting a Sheet Metal Workers' proposal that seeks a majority vote for the election of directors. A similar shareholder proposal last year received 39 percent of votes cast.

Progress Energy Sets New "Gold Standard"
Meanwhile, Progress Energy filed in its proxy materials what is believed to be the first management proposal to change a company's articles of incorporation to require a majority vote for the election of directors. Management is also proposing a resolution to hold annual board elections. The North Carolina utility's annual meeting is May 10.
More than 20 companies have adopted a majority vote standard this year, primarily by revising their bylaws. Progress Energy appears to be the first to seek to make the change in its articles of incorporation. In North Carolina, as in most jurisdictions, articles of incorporation can only be amended if the change is proposed by the board and endorsed by shareholders, whereas bylaws can generally be revised by the board alone.

The Progress Energy proposal requires a majority of votes cast to pass, and abstentions and broker non-votes will not count as votes cast or against, the proxy statement notes. If approved, the new standard would apply for the company's 2007 annual meeting. To overcome the North Carolina "holdover rule" which requires a director to serve until his or her successor is elected, the company adopted a director resignation policy in its corporate governance guidelines, which would become effective upon filing of the amended articles of incorporation.

Action on the resignation is left up to the governance committee, but if its members fail to gain majority support, the independent directors who did get elected can appoint a committee of independent directors to make a recommendation on the tendered resignation.

"This has become the new gold standard on company policy on director elections," Rajeev Kumar, ISS director of U.S. research, told Governance Weekly.

Delaware Lawyers Issue Recommendation
In another development in the debate over board elections, the executive council of the Corporate Law Section of the Delaware State Bar Association has issued a recommendation on the issue. On April 20, the lawyers' group endorsed draft legislation to amend the Delaware General Corporation Law to enable shareholders to introduce an irrevocable change of bylaws on director elections, as well as provide for an irrevocable resignation of directors who fail to get a requisite number of votes.

The proposal, which must be endorsed by the full bar association and then passed by state lawmakers, is noteworthy because a majority of U.S. public companies are incorporated in Delaware. The proposal would amend paragraph 216 of Section 5 of the law to provide that a company bylaw adopted by a vote of stockholders that prescribes a required vote for director elections cannot be altered by the board without shareholder consent.

Another proposed revision seeks to get around the restrictions of Delaware's "holdover" rule by adding a new provision that a director resignation may be made effective upon the occurrence of a future event or events, coupled with authority granted in the same section to make certain resignations irrevocable.

"The changes seek to allow shareholders to effectuate a majority vote standard, if that is their choice," David C. McBride, a partner in the law firm of Young Conway Stargatt & Taylor, and chairman of the corporate law committee's executive council, told Governance Weekly.

The proposed bill will be submitted to the Delaware legislature in the next week or two, McBride said. The proposal does not modify the default plurality standard.

Michael Barry, a partner in the law firm of Grant & Eisenhofer, which represents the Council of Institutional Investors in this matter, told Governance Weekly that the Delaware proposal is more flexible than the recommendations on majority elections made by the American Bar Association.

"I think this is a significant change and these amendments appear to have been proposed directly in response to the demand for majority voting and . . . more responsiveness [by directors] by shareholders nationally," Barry told Governance Weekly. 'But I am disappointed that it's not a larger step."

A larger step would entail changing Delaware law to establish majority voting as the default standard, while providing an opt-out mechanism for corporations that wish to retain a plurality standard, Barry noted.

"What this proposed amendment does is to make clear--that on bylaws that are specifically directed to the voting requirements for directors--the board can not amend them," he said. "It makes it a question of law rather than one of fiduciary duty."