Almost 150 directors who failed to receive majority support in reelection votes at US companies over the last five years stayed on the board anyway, new data shows. Many investors consider this practice poor governance, but there can be good reasons to keep such directors in their seats, sources said. And most of the time, boards do.
Companies choose to keep these so-called “zombie” directors on for a variety of reasons, including experience and overall performance, and if they believe the votes could have been a signal for something else, sources said.
"It's a very sensitive topic," said Peter Thies, managing director with Pearl Meyer. "It's uncomfortable removing a director because there's reputational risk to the company, to the board, and to the directors themselves, so boards tend to be pretty cautious about those things."
Investors vote against board members for a variety of reasons, including governance failings, pay concerns, CEO performance and succession issues, and disagreements with strategy. If a director does not receive majority support, it could be a good time to consider refreshing and updating evaluations to weed out performance issues, sources said.
"There is more of a move these days for directors to give each other feedback during—or in addition to—an annual board assessment. And it hasn't been practiced as widely, but we're finding an uptick," Thies said. "That can help mitigate the risk that you end up with ‘zombie’ directors in the first place."