Vote Requirements at U.S. Meetings

JUNE 21, 2019

At the general meeting of Tesla Inc. on June 11, 2019, two management proposals seeking to introduce shareholder-friendly changes to the company’s governance structure failed to pass, despite both items receiving support by more than 99.5 percent of votes cast at the meeting. To get official shareholder approval, the proposals needed support by at least two-thirds of the company’s outstanding shares. However, only 52 percent of the company’s share capital was represented at the general meeting; based on turnout alone, there was no possible way for the proposal to pass.

Vote requirements in the U.S. can be mindboggling to anyone unfamiliar with governance practices and proxy voting. This article provides an overview of some important factors to consider when assessing proxy vote results and meeting agendas in general. We highlight the following key takeaways:

  • Vote requirements vary significantly by proposal type. Mergers, share issuances, and changes to the bylaws typically require support by a percentage of all outstanding shares, while the outcome of most other proposals is determined based on votes cast.
  • Supermajority vote requirements are very difficult to remove, and they make it very difficult for companies to implement governance reform and shareholder-friendly governance practices.
  • Broker non-votes can play an important role in determining a voting outcome, as they often make up a significant portion of the company’s outstanding shares, and they are excluded from most proposals, except for routine times, such as the ratification of auditors.
  • The plurality vote standard remains common practice at small-cap firms, as approximately 72 percent of non-S&P 1500 Russell 3000 companies continue to employ the practice. Only 29 percent of companies with a plurality vote standard have a director resignation policy in place.

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