From Nominations To Votes: The Rise Of Boardroom Democracy

Directors play a critical role in shaping corporate strategy, governance, and stakeholder value. Their election and re-election are more than procedural formalities—they reflect the evolving priorities of shareholders and set the tone for accountability in corporations.

The landscape of director elections is transforming rapidly, driven by factors like rising ESG expectations, stricter governance frameworks, and increased investor engagement. This article delves into trends in director (re)elections at shareholder meetings, examines the drivers of dissent, and explores how shareholder expectations are reshaping boardroom dynamics.

The role of directors is no longer confined to fiduciary duties; it encompasses complex challenges like climate change, digital transformation, and geopolitical risks. As a result, shareholder scrutiny of directors has intensified.

Chart 1. Director (Re)Elections Receiving Sub 80% Support

What Are We Seeing:

Chart 1 shows a notable decline in the number of director election resolutions in the FTSE All-Share receiving less than 80% shareholder support—a key benchmark for significant dissent.

Why Are We Seeing This:

This may reflect the broader changes shaping the industry in recent years, such as:

• Improved Communication – Many companies are enhancing their engagement with shareholders providing clearer insights into strategic decisions and governance practices.
• Stronger Governance Frameworks – Companies are adopting best practices in governance leading to greater transparency and accountability which fosters trust among investors.
• Focus on ESG Initiatives – As firms prioritise environmental, social, and governance issues, shareholders are more likely to be supportive of directors who actively champion these efforts.

These are just a few of the many possible contributors. Overall, these factors could be contributing to a growing sense of alignment between directors and shareholder interests, resulting in increased support at AGMs. 

In the next section, we will look at another possible contributing factor – Proxy Advisor Recommendations. Proxy advisors such as ISS, Glass Lewis, and PIRC play a pivotal role in shaping shareholder voting behaviour by providing recommendations and analyses on resolutions.

Chart 2. Proxy Advisor Recommendations at FTSE 350 Companies receiving Sub 80% Support for Director (Re)Election

What Are We Seeing:

Chart 2 illustrates a decline in the average percentage of oppose recommendations from proxy advisors for director election resolutions that also received less than 80% shareholder support.

Why Are We Seeing This: 

A possible explanation for this trend is that the alignment between shareholder expectations and corporate governance practices has led to reduced contentious resolutions. Consequently, proxy advisors have recognised improvements in board effectiveness, diversity, and ESG integration, leading to fewer oppose recommendations.

In the next section we will analyse the publicly disclosed rationales for shareholder votes cast AGAINST directors at shareholder meetings to determine any patterns and areas in focus.

Chart 3. Shareholder Rationales (Oppose Votes)

What Are We Seeing:

Chart 3 identifies two key drivers of shareholder dissent in FTSE 350 director elections since 2021: concerns about board diversity and directors holding excessive board positions (overboarding).

Why Are We Seeing This:

Diversity Concerns

Diversity targets have grown out of market initiatives supported by institutional investors. These include the Hampton-Alexander Review, the FTSEWomenLeaders review, and the Parker Review. Further, in 2022, the FCA finalised rules requiring listed companies to report information and disclose against targets on the representation of women and ethnic minorities on their boards and executive management. All of these initiatives have contributed to an increased focus of diversity at board level. 

Following the Listing Rules being published in 2022, the chart shows an increase in 2023 in the number of shareholders citing diversity at board level as a reason for their opposition. As of February 2024, female representation on FTSE 350 Boards reached 42% [Link], this could explain the decline in shareholders citing diversity as a rationale for votes cast AGAINST directors.

Overboarded Directors

Overboarding refers to a director who is perceived to be sitting on an excessive number of boards, resulting in concerns with their time commitments and their ability to dedicate sufficient time to the role. It is also an issue which remains contentious given the different viewpoints. For example, in the UK Corporate Governance Code, for chairs or other non-executive directors, there is no limit on the number of directorships they can hold but the individual must "allocate sufficient time to the company to discharge their responsibilities".

Proxy Advisors consider any individual who holds more than five mandates at listed companies as over-boarded, and different shareholders also have director over-boarding policies which don’t have a unified perspective. For example, BlackRock state in their EMEA Proxy Voting Guidelines, “BIS will ordinarily consider there to be a significant risk when a board candidate has insufficient capacity, and therefore consider voting against his/her (re)election, where the candidate would (if elected) be serving as a non-executive director (but not the board chair) on more than four public company boards,” whereas JPMorgan Asset Management state in their Global Proxy Voting Guidelines, “In order to be able to devote sufficient time to his or her duties, we would not normally expect a non-executive to hold more than three significant directorships at any one time.”

As such, given the varying perspectives, and absence of consensus in the number of mandates a director should hold, it’s no surprise that it has culminated into a voting issue.