How are corporate directors really elected? This question—one of the least discussed mysteries in corporate governance—is finally surfacing for a needed debate. Most people assume that shareholders vote “for” or “against” a candidate and that directors are elected by a majority of votes cast. The reality is far different.

Investors do not have a choice to vote “for” or “against,” but instead vote “for” or “withhold,” which sends only a symbolic message to the board when counted. Even SEC Chairman William Donaldson has voiced his concern about this peculiar process. Indeed, many commentators describe it as a “soviet style” election: The Nominating Committee proposes a slate of directors, they run unopposed, and they are elected no matter how small the number of support votes they receive. In fact, a director could receive only her or his own “for” vote and still be elected. This is no way to create a responsive board, which, after all, is in place to represent shareowner interests. It is time to change the election process so board members are authentically elected by, and become accountable to, shareowners.

In recent years there have been several highly visible “vote no” campaigns. In 2004, Disney’s Michael Eisner received an amazing 43 percent “withhold” vote following a campaign by investors unhappy with his leadership and Disney’s performance. Proxy voting firms are also withholding votes from directors when a board ignores a previous majority vote on a specific reform.

In 2005, a number of building trade unions, led by the United Brotherhood of Carpenters and Joiners, have submitted shareholder resolutions to more than 75 companies asking them to amend their corporate governance policies so that director nominees must be elected by an affirmative majority of votes cast. Walden is voting in favor of these resolutions and writing companies to explain why.

But this should be a universal standard, not one held only by specific companies. The American Bar Association (ABA) is studying changing its “Model Business Corporate Act,” a welcome way of addressing this needed reform system-wide. The Act provides a blueprint for states, and about 30 of them pattern their laws after the ABA model.

Changing the election process would be a substantial reform in governance. Directors needing a “for” vote greater than 50 percent to be elected would surely see a large “withhold” vote as a worrying sign of investor dissatisfaction and would work to become more responsive and accountable.

—T. Smith