Banning ‘Phantom Votes’ Gives Shareholders More Say in Who Will Be Bank Board Members

Voting for bank boards should definitely be a more interesting as new rules regarding “phantom votes” by the New York Stock Exchange will give shareholders more say in who ends up seated on the board. This will of course extend to all companies listed on the exchange.

Starting in 2010, votes can no longer be cast for a board director without shareholder guidance or input, and that will definitely have potential to shake up banking boards which shareholders are dissatisfied with.

The former system has been criticized for some time as vote brokers normally have voted for sitting directors even though shareholders had been pressuring for the removal of the director. These types of votes have also been called “broker votes.”

Primarily, the complaint through the years has been that phantom votes has on a number of occasions resulted in a sitting board member retaining their position no matter how effective or quality their performance had been. Some critics have even went so far as to call it legalized ballot stuffing.

Even with these new rules, it seems it will take some time for this to make a lot of difference, but their existence ensures sitting board members will not feel as comfortable and retain an attitude of tenure going forward, which hopefully will bring at minimum a healthy tension and seriousness as to doing the job they were voted in for.

One company CEO, Bruce Goldfarb, who heads Okapi Partners, which helps shareholders and companies during times of election disputes, had this to say about the new rules: “There could be more situations where directors fail to achieve a majority vote, which could lead to a failed election, resignation or being pushed out.”

In the banking industry this probably would have happened with Washington Mutual and Bank of America (NYSE:BAC). For Bank of America, a number of shareholders believe that sitting director Temple Sloan would have been removed from the board if the rules had been instituted at that time, as 37.4 voted against him early in 2009. Most of the turmoil centered around what was perceived by shareholders as the withholding of information about the condition of Merrill Lynch at the time Bank of America had acquired it.

Concerning Washington Mutual, some shareholders say that several sitting directors would not have been re-elected to the board, especially James Stever and Charles Lillis.