NEW YORK--(BUSINESS WIRE)--The following was issued by UNITE HERE:
Over 40% (18/44) of “zombie directors” haunting U.S. boardrooms this year oversee companies incorporated in Maryland, according to data collected by the Council of Institutional Investors (CII).
“Zombie directors” are corporate directors who continue to serve as shareholder representatives after having lost the support of a voting majority of shareholders.
It is comparatively rare for shareholders to withhold votes from corporate directors in large numbers. The E & Y Center for Board Matters surveyed Russell 3000 companies and found that, on average, corporate directors received the support of 96% of votes cast in 2015. Only 4% of directors received less than 80% support, and only 0.3% received less than majority support.
There appears to be a high risk that directors losing majority support, however, return as Zombies: in 2015, only about 22% of directors who have lost majority support left their board seats within three years, according to CII estimates.
Zombie directors appear to be particularly concentrated in Maryland Real Estate Investment Trusts (REITs): MD-incorporated REITs were home to 38.6% of Zombie directors this year. 29.6% sat on the boards of companies incorporated in Delaware.
Since 2010, CIl has sent letters to all Russell 3000 companies where directors failed to receive majority support, requesting their removal. CII has also urged major US stock exchanges to require listed companies to use the majority voting standard in uncontested elections of directors – the standard in nearly all major markets around the world, including the United Kingdom, Canada, the Netherlands and Hong Kong.
Zombie directors can make their way into boardrooms even at companies that on paper require directors to be elected with majority support. Hospitality Properties Trust [Nasdaq: HPT] has a majority vote standard for director elections. Yet independent director and Chair of the Nominating and Governance Committee William Lamkin and Managing Director Adam Portnoy are now serving their second consecutive terms as zombie directors.
“When companies like HPT repeatedly ignore majority votes cast against directors, they effectively render our hard-won right to annual director elections meaningless,” said JJ Fueser, Research Coordinator at UNITE HERE. “The presence of Zombie directors – particularly multi-term Zombie directors – may signal a need for regulators to backstop this basic shareholder right.”
UNITE HERE represents hospitality workers and is a member of the Council of Institutional Investors. Its members are beneficiaries of pension funds with over $60 billion in assets. Since 2012, UNITE HERE has pursued a program of improving shareholder rights at hospitality REITs. See www.hotelcorpgov.org for more details.