VC Strine, Withholding Votes, and the Impact on Corporate Governance

We wrote in the past about VC Strine's views on certain classes of investors and the impact on corporate governance.  In particularly, he noted that directors were well paid but often beholden to shareholders because of the fear of a withhold campaign.  As he noted, investors "can use the threat of a withhold campaign to bargain for concessions and the seating of some of their favorites by action of the incumbent slate."  We noted in turn that this turned actual practice on its head, that directors were almost never removed through a withhold campaign.  Instead, directors can only be removed in any meaningful way by not getting renominated by the board, a place where the CEO has considerable influence.  So directors do want to retain their position but to do so must be beholden to management.  

With that in mind, we note the high profile dispute over the directors of Morgan Stanley.   Several large mutual funds, including Calpers, opted to withhold votes from a number of directors, including Chairman and Chief Executive John Mack.  Why?  As the Journal noted, the investors were doing so "because of their failure to generate returns consistent with the broad stock market and because compensation for executives isn't tracking profitability." 

And the impact of this withhold campaign?  The directors were overwhelmingly reelected, including John Mack, who received around 95% of the total votes cast.  While its only one example, it is also typical.  The number of instances when directors actually fail to get a majority as a result of a withhold campaign?  One.