Losing Directors Remain In Office, Disclosure Needed

By Yin Wilczek

June 27 — An independent research group is calling for changes to Securities and Exchange Commission disclosure rules after it found that a significant percentage of corporate directors who lose their elections nonetheless remain in office.

The Committee on Capital Markets Regulation—whose members come from the top echelons of business, finance and academia—examined 60,920 director elections held at Russell 3000 companies during 2010, 2011 and 2012, out of which 176 directors did not receive a majority of the votes cast during their elections. CCMR released the results of its study June 24.

Comparing the 176 “losing” directors to a control group, CCMR found that two years after losing an election, about 84.7 percent of the losing directors remained on the board, compared to 90.3 percent of the control group.

In light of its findings, CCMR recommended that the SEC adopt regulations to require boards that decide to retain a losing director to disclose publicly “in some form the specific reasons why” they chose to retain the “unelected” director.

CCMR and SEC representatives did not immediately respond to requests for comment.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Susan Jenkins at sjenkins@bna.com

The CCMR study is available at http://capmktsreg.org/2014/06/committee-issues -statement-on-unelected-directors/.