May 1, 2006

Progress on Delaware Bar Association’s Consideration of Majority Vote Standard

According to ISS’ “Corporate Governance Blog,” the Executive Council of the Delaware State Bar Association’s Corporate Law Section has 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 does not modify the default plurality standard.

The proposal would amend paragraph 216 of Section 5 of the DGCL 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 proposed bill will be submitted to the Delaware legislature in the next week or two – and then it must be endorsed by the full Bar Association and then passed by the Delaware legislature before becoming law.

49% Support for Binding Majority Vote Proposal

Here is another item from ISS’ “Corporate Governance Blog“: This season’s first binding proposal seeking majority voting received more than 49% of votes cast at Honeywell this week, according to the proponent, AFSCME.

That showing was significantly higher than the 20% vote received by a binding AFSCME proposal at Paychex in October. The Honeywell vote is also noteworthy, because the company had adopted a director resignation policy. Before the April 24 vote, the best showing for a majority vote resolution at a company with a resignation policy was the 45% support at Hewlett-Packard in March for a non-binding proposal by the United Brotherhood of Carpenters and Joiners.

Majority Vote Standards in Articles of Incorporation?

And one last item from ISS’ “Corporate Governance Blog“: “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.”

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