Zombies in the Boardroom!

No, I'm not talking about the sequel to World War Z.  This is about so-called "zombie" directors - I love the term - who receive more "against" votes than "for" votes but who nonetheless remain in office.  That sounds plain un-American!

Thanks to my friends at the Council of Institutional Investors, I got a list of the 45 directors that the Council regards as being, or having been, zombies.  For starters, four zombies have been replaced, which brings the total down to 41.  Now it gets interesting, because of those 41, 33 are directors of companies that have plurality voting rather than majority voting (or some variant).  Now I hate to get technical, but when a company has plurality voting for directors, a director who receives a plurality of the votes - even if more votes are withheld from his/her election - is validly elected.  Thus, 33 of the so-called zombies are not zombies.  At least not from a technical standpoint.  So if people are upset about these 33 folks staying in office, it seems to me that they need to push (or keep pushing) for majority voting.

Which brings us to the eight "true" zombies who lost their elections at majority-voting companies.  Now I believe that in certain circumstances it may be appropriate for a director who loses an election to stay on, but in those circumstances it's incumbent upon the company to explain why.  In fact, in my experience, the by-laws of companies with majority voting require disclosure on this point.  So I looked at the companies' disclosures to see what they said.

I'm disappointed.  First, the good news: one company explained that the zombie in question had had poor attendance due to special circumstances but had committed to improve his attendance, thus meriting his staying on the board.  Could they have provided a bit more explanation - for example, why it was important for him to stay on the board notwithstanding his poor attendance?  Sure.  But this is still helpful disclosure.  

Now for the bad news.  Two companies (with five of the eight zombies) said nothing.  And I mean zilch, nada, zip.  And the remaining two companies told us that their zombies stayed on the board because it was "in the company's best interest."  Really?  Yes; I wish I were joking, but that's what they said.  I don't even begin to know what this means, which I suspect is precisely why the companies used this phrase; they didn't really know the reason either.

So I come back to my point above - if you're going to keep a zombie on the board, I think you owe it to your owners to at least give a reason why.  And it shouldn't be something meaningless like the company's "best interest" with nothing more.

Companies should know by now that if they don't voluntarily provide good disclosure, someone else will make them do it.  Wouldn't it be better to provide good information than to force the SEC to act by adopting more rules - or, much worse, forcing Congress to get in the act?