The Problem with Plurality Voting: Why Can’t Shareholders Rule Against a Director?

Plurality voting is the accepted standard in both Canada and the United State for the election of directors. Under plurality voting, every voter can exercise one vote for each candidate, and the candidate with the most votes wins regardless of whether that candidate obtains a majority of votes or not. In an election where there are the same number of nominees as there are board positions available, each nominee receiving even one vote will still be elected regardless of the number of “withhold” votes cast by disgruntled shareholders.

Shareholders are left with the reality that a majority of “withhold” votes has no legal effect. As long as plurality voting remains the standard in corporate director elections in North America, director elections are meaningless. In reality boards can present slates of nominees and simply receive the “rubber stamp” they are seeking. A dissatisfied
shareholder is faced with either liquidating the investment, which is not always feasible for large investors, or launching of a costly proxy contest. The latter is obviously a radical solution.