You may have noticed that careful reportage of the forthcoming Disney board election does not refer to shareholders voting against Michael Eisner. Instead, careful reporters refer to shareholders "withholding support" or "withholding their votes." One of the curiosities of the corporate electoral system is that it does not actually provide for a straight up or down - for or against - vote for directors. Instead, under SEC Rule 14a―4(b), the company must give shareholders three options on the proxy card: vote for all of the nominees for director, withhold support for all of them, and withhold support from specified directors by striking out their names. (See, e.g., the sample Disney proxy card from Roy Disney's website.)
Withholding support is not the same as a vote against, absent a contested election. Delaware General Corporation Law § 216(3) provides: "Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors." The Comments to Model Business Corporation Act § 7.28(a), which also uses a "plurality" standard, explain that: "A 'plurality' means that the individuals with the largest number of votes are elected as directors up to the maximum number of directors to be chosen at the election." Disney had 11 vacancies to be filled and there were exactly eleven candidates. Hence, it seems, Eisner would have been reelected even if a majority had withheld their votes from him.
Hard core corporate law junkies will note a potential complication in my analysis. DGCL §: 216(3) refers to a "plurality of the votes of the shares present in person or represented by proxy at the meeting." In contrast, MBCA § 7.28 refers to a "plurality of the votes cast by the shares ... at a meeting at which a quorum is present." Does this minor difference reflect the distinction drawn by Delaware and the MBCA on the treatment of abstentions? MBCA § 7.25(c) provides that "action on a matter [other than election of directors] is approved if the votes cast ... favoring the action exceed the votes cast opposing the action." In contrast, DGCL § 216 states that "the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders." The distinction between the two formulations is subtle but significant. Suppose there are 1000 shares entitled to vote, 800 of which are represented at the meeting either in person or by proxy, and which are voted as follows: In Favor - 399; Opposed - 398; Abstain - 3. Under the MBCA, the motion carries, as more shares were voted in favor of the motion than against it. Under the Delaware statute, however, a majority of the shares present at the meeting - i.e., 401 - must be voted in favor of the motion for it to carry, and this motion therefore fails. In effect, Delaware treats abstentions as no votes, while the MBCA ignores them. Note the parallel to the "cast" versus "present" formulations with respect to election of directors. Does the phrasing of § 216(3) therefore suggest that Delaware would treat a proxy withholding authority to vote for a director the same way it treats abstentions as to other matters, in which case Eisner would not have been reelected if a majority had withheld support? My guess is that the answer is no, but I haven't been able to find any authority.
