It turns out the squeaky wheel really does get the grease, even in the corporate world. A recent academic study highlights that taking the step of withholding votes in uncontested director elections often results in the board of directors addressing the issue underlying the withheld vote. Authors Yonca Ertimur (Univ. of Colorado at Boulder), Fabrizio Ferri (Columbia Business School) and David Oesch (Univ. of Zurich) undertook an examination the factors behind shareholder votes in uncontested director elections, the impact of these votes on the actions of firms and the impact of the actions on the value of the firm.


Ertimur et al. utilize a comprehensive sample of 23,844 director-firm-year observations for director elections held at S&P 500 firms from 2003 to 2010. For each director with an Institutional Shareholder Services withhold recommendation (1,673 cases; 7% of the sample), they identified the reasons for the recommendation for the ISS.

Director Elections Withholding Votes

They grouped withhold recommendations into three categories, dividing up the sample whether the underlying concerns related to an individual director (38.1% of the sample), every member of a committee (28.6%) or every board member (33.3%).

Details on the uncontested director elections study

It turns out that around 65% of the individual-level withhold recommendations were associated with independence-related concerns, with the other 35% related to concerns with how busy directors were and/or their attendance record. Nearly all committee-level withhold recommendations are connected to executive pay. As for board-level withhold recommendations, 72% are due to the lack of responsiveness of BoDs to shareholder proposals receiving a majority vote (proposals to declassify the board, for example), with the majority of the others relating to the adoption of a poison pill without shareholder approval.

Next, the authors looked at the determinants of the voting outcome in director elections, focusing on the reasons underlying the ISS recommendations. Of note, although voting in opposition is low (about 5% votes withheld), Ertimur and colleagues highlight “the presence of an ISS withhold recommendation is associated with 20.62% more votes withheld. More importantly, we find substantial variation in votes withheld from directors conditional on the underlying reason. A board-level ISS withhold recommendation is associated with 25.48% more votes withheld, versus 19.73% and 16.44%, respectively, for committee- and individual-level withhold recommendations.”

Withholding votes does get results

Director Elections Withholding Votes

The results of the study definitely confirmed that withholding votes does often lead to a management response to the problem at hand. The authors note: “While high votes withheld rarely result in director turnover, hand-collected data show that in almost half of the cases firms explicitly respond to an adverse vote by addressing the underlying concern. The rate of responsiveness increases in voting dissent and varies with the rationale behind the vote.”

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