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Thursday, April 12, 2018

Strategic CSR - Shareholder democracy

If the fiction of shareholder democracy needed any more exposure, the article in the url below highlights the weak powers that shareholders have to influence directly the running of corporations. In particular, the article focuses on what it terms "zombie directors":
"They're board members who've failed to get a majority of shareholder votes in elections but continue to serve. From 2012 to 2016 there were a total of 225 instances where directors of public companies got less than half the votes cast, but only 44 directors, or 20 percent, left within the next election cycle, according to a Bloomberg analysis of data from ISS Corporate Solutions Inc. The directors who stayed included 30 who were snubbed by shareholders more than once."
In contrast to many shareholder votes, where the results are nonbinding on management, director elections are binding. Rather than a majority needed to be elected, however, most firms allow directors to be elected with a plurality of votes. This means merely that they need more votes than any other candidate and, since most directors run unopposed, 1 vote is all they need to be duly elected:
"In response to investor and activist complaints, companies have been agreeing to new standards under which directors who don't receive a majority of votes have to submit a letter of resignation. Currently, 54 percent of companies require a director to do so. The hitch: The board usually isn't required to accept those resignations and can reinstate the unelected director."
The article lists a number of such examples, with some directors failing to receive a majority of votes multiple times:
"In each case, the directors reviewed the voting results and chose not to accept the resignations, citing their colleagues' value to the company, according to regulatory filings."
Take care
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With 'Zombie' Directors, It's the Board of the Living Dead
By Jeff Green and Alicia Ritcey
August 10, 2017
Bloomberg Businessweek