A close director vote at CVS/Caremark is fueling investor demands for the Securities and Exchange Commission to approve a New York Stock Exchange rule change to bar brokers from casting uninstructed investor votes in board elections.

"I think this vote will be Exhibit A in the deliberations of the NYSE and the SEC in the coming weeks," said William Patterson, executive director of the CtW Investment Group, which has urged CVS/Caremark to request the resignation of director Roger Headrick.

The Council of Institutional Investors (CII) plans to hold a conference call on May 29 to address the issue, Patterson said.

Headrick received 606.585 million "for" votes and 453.175 million "against" votes at company's May 9 meeting, CVS/Caremark said in a regulatory filing. Based on those numbers, Headrick received a 42.7 percent negative vote. However, the vote results for five other proxy items reveal that 264.762 million "broker non-votes" were cast. If those broker votes are subtracted from Headrick's "for" total, then the "against" votes would amount to 57 percent of the remaining votes.

The stakes are higher at CVS/Caremark, because the company, like scores of other large firms, now requires that board nominees receive a majority of votes cast in uncontested elections to be elected.

"Before this proxy season, all of this was theoretical," Patterson told Governance Weekly. At CVS/Caremark, "the broker votes were decisive and that's clear."

CtW, which manages funds for the Change to Win labor federation, targeted Headrick and a second former Caremark Rx board member over their handling of the pharmacy benefits company's recent sale to CVS, the largest U.S. drug-store chain.

In its regulatory filing, CVS/Caremark said "votes 'against' a director's election count as a vote cast, but 'abstentions' and 'broker non-votes' do not count as a vote cast with respect to that director's election."

However, the vote results suggest that some of those broker votes were counted in Headrick's election. The company's filing indicates that a total of 1,059.76 million shares were cast either "for" or "against" Headrick. CVS/Caremark also reported that the total votes cast at the meeting were 1,091.671 million, or 31.91 million more. The vote results for five other proxy items indicate that there were 264.762 million broker votes, so it appears that 232.852 million broker votes were counted in Headrick's election for his vote total to reach 1,059.76 million. Those 232.852 million votes exceed the 153.41 million difference between the "for" and "against" votes that the company reported that Headrick received.

Company spokeswoman Carolyn Castel told Dow Jones Newswires that the "broker votes were spread among the votes cast for and against the directors."

However, Patterson and other investor advocates contend that broker votes are routinely cast in favor of management nominees in uncontested elections. The Council of Institutional Investors has said these votes "taint the integrity of the proxy voting process by stuffing ballot boxes for management."

In May 15 letter to David Dorman, chair of the company's nominating and corporate governance committee, Patterson wrote, "these votes do not accurately represent shareholder sentiment" and he warned that using "controversial 'phantom' votes” to elect Headrick "would only exacerbate" concerns about the board's accountability to shareholders.

So far, CVS-Caremark is standing by Headrick. "On the day of our shareholder meeting we expressed our enthusiasm for the election of the board and we wouldn't have anything more to add at this point," Castel said, according to Dow Jones.

Under current NYSE rules, brokers may vote on "routine" matters with shares from clients who do not provide voting instructions at least 10 days before a scheduled company meeting. While shareholder proposals and equity incentive plans are not considered routine, director elections still are. If approved by the SEC, the NYSE rule change would apply to annual meetings held after Jan. 1, 2008.