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Firms tighten director elections
Qwest, First Data to require majority vote for nominees
By David Milstead
Rocky Mountain News
Friday, January 2, 2007

Qwest and First Data have adopted a new standard of voting for directors, with nominees needing a majority vote of shareholders to be re-elected.  The change, made by each company's board last month, eliminates a method of voting in which directors could regain their seats on the board with a single vote, even if all other shareholders were opposed.

Qwest and First Data are not the first Colorado companies to make the change -- for example, real-estate company ProLogis adopted the standard in early 2006.  But the moves by two of the state's biggest companies provide more evidence of a shift in corporate America's thinking.

Governance critics have targeted director elections because it's nearly impossible for director nominees to lose their seats.

Amy Borrus, deputy director of the Council of Institutional Investors, recently told the Rocky Mountain News that director elections are "virtually Stalinesque."

Each year, when a company conducts its election, the board nominates a slate of candidates.  One person is listed for every open seat -- no more, no less.

Shareholders typically get two choices:  "for" and "withhold," as in withholding a vote from the director.  In most elections, no matter how many shareholders vote to "withhold," the directors will have at least one "for" vote and will get re-elected automatically.

"It's as though you were voting for your congressional delegation, and yet no one bothered to run against them," said Patrick McGurn, an executive vice president at proxy-advisory firm Institutional Shareholder Services.

Under Qwest's and First Data's new majority standard, the nominees are expected to get at least half the votes cast.

If they fail to get a majority, the directors are expected to submit a letter of resignation.  The board then decides whether or not to accept it.

Qwest faced a shareholder proposal on this spring's proxy that called for a majority-vote standard.

The company recommended shareholders vote against it, in part because the proposal didn't say what would happen to a director who failed to get 50 percent.

The company also said, "Qwest stockholders have a history of electing a strong and independent board, by plurality, and the average affirmative vote for directors in the past several years has been greater than 90 percent of the shares voted."

The proposal garnered 53 percent of the votes cast, below the 80 percent of shares outstanding required to make a corporate bylaw change.

"At the time, (CEO Dick Notebaert) said this would be an issue the board would look into," spokeswoman Diane Reberger said.  "This is the result of that."

Qwest also began "declassifying" its board in 2005 to eliminate the staggered elections in which one-third of directors face the shareholders each year.  In 2007, for the first time, all directors will stand for election to a one-year term.

In a statement, First Data spokeswoman Nancy Etheredge said, "The board believes (majority voting) gives shareholders more meaningful input in the election of Directors."

David Milstead is finance editor of the Rocky Mountain News. He can be reached at 303-954-2648 or,2777,DRMN_23908_5250639,00.html