On March 16, four compensation committee members at The Pantry, a North Carolina-based convenience-store chain, received more than 53 percent opposition. Investors withheld more than 9.17 million votes (out of the 17.8 million cast) from each of the four directors, according to a recent company 8-K filing. Had all of the 2.04 million broker votes been cast for the management nominees, they would not have received majority dissent.
 

The negative votes appeared to stem from the compensation paid to former CEO Peter Sodini, who left the firm in September. Sodini received a 67 percent increase in total compensation in 2009, while the company posted a negative 26 percent one-year shareholder return and a 34.7 percent negative return over three years.

Despite this investor opposition, the company reported that the four directors were duly elected. The Pantry, like many of its Russell 3,000 index peers, does not have a majority voting bylaw or a resignation policy.

Meanwhile, a director resigned at Herley Industries, a small-cap defense firm in Pennsylvania, after receiving 65 percent opposition at the company’s March 23 annual meeting. The director in question, Edward K. Walker Jr., served on the compensation committee, even though he had a $75,000 consulting contract with the company.  Broker votes were not decisive at this meeting; Walker received 7.7 million withhold votes out of 11.8 million cast, and there were 1.2 million broker votes.  

According to a company filing, the remaining members of Herley’s board met on March 31 and decided unanimously to accept Walker’s resignation and to terminate the consulting arrangement. Unlike Herley, most other boards have declined to accept director resignations after majority withhold votes triggered their resignation policies.  Also at this year’s meeting, Herley presented a management proposal to declassify the board, which shareholders approved overwhelmingly. 

More than 90 directors at U.S. companies failed to win majority support in 2009, and there may be a significant increase in high withhold votes this season. As of Jan. 1, New York Stock Exchange-regulated brokerage firms may no longer cast uninstructed votes in favor of management nominees in uncontested board elections. In the past, broker-cast votes have accounted for between 15 to 20 percent of the vote in director elections at many companies. The absence of broker votes likely will have a greater impact on those small- and mid-cap firms that have a greater percentage of retail investors.