In our paper, Does the Director Election System Matter? Evidence from Majority Voting, which was recently made publicly available on SSRN, we examine the economic consequences of a change in the director election system, namely, the switch from a plurality voting to a majority voting standard.

Under a plurality voting standard—until recently the default arrangement under most state laws—the candidate with the most votes “for” is elected, a system that helps avoid the disruptive effects of failed elections. In uncontested elections, the plurality voting standard means that each nominee will always be elected as long as she receives one vote “for,” irrespective of the number of votes “withheld” (under SEC rule 14a-4(b) shareholders cannot vote “against” a director nominee, they can only vote “for” or “withhold” support).

Under a majority voting (MV) standard, instead, even in uncontested elections a director would not be elected unless the majority of votes were cast in her favor. Starting in 2004, firms have begun to adopt some form of MV standard, often in response to non-binding shareholder proposals filed by activists and policy makers have debated whether to mandate a MV standard. By the end of 2007, about two thirds of the S&P 500 firms had adopted some form of MV.

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