America’s Teflon Corporate Boards

Members of the board of medical diagnostics company IRIS International courted trouble earlier this year when they voted to retain a 10-year-old poison pill takeover defense without seeking shareholder approval. They believed they were acting in the company’s best interests, says company spokesman Ron Stabiner. Many shareholders disagreed, and at the company’s annual meeting in May all nine of IRIS International’s directors received less than half of shareholders’ votes to retain their seats. That lack of support among a majority of investors triggered a company policy that required all board members to tender their resignations, which they did. Then things got interesting: The directors voted not to accept their own resignations, Stabiner says, and continued to do their jobs.

When it comes to electing directors, majority rule doesn’t always carry the day. At thousands of public companies the shareholder votes aren’t binding, and even one positive vote is enough to keep a director in his job. In the past three years more than 200 directors at U.S. companies, from Cablevision Systems and shopping network owner HSN to SiriusXM Radio and Taser International, have failed to receive a majority of votes. In all but a few cases the rejected directors stayed, according to data collected by Institutional Shareholder Services, the Council of Institutional Investors, and GovernanceMetrics International. (Cablevision had no comment on its governance. Sirius and Taser didn’t respond to e-mails seeking comment.)