This topic has been widely explored, and much has already been written about it. Rather than revisiting familiar arguments, my aim is to highlight a handful of underappreciated governance features that I have found particularly useful when evaluating management teams and boards—and deciding whether they are truly worthy partners for deploying hard-earned capital.
Focusing solely on management and board compensation often provides an incomplete picture of whether leadership is aligned with shareholders. Many of the more revealing signals are embedded in less obvious places, such as a company’s bylaws and proxy statements. Below, I outline four such indicators. These should be viewed as signals, not definitive conclusions.
Plurality Voting in Uncontested Elections
First, some definitions. Under plurality voting, board nominees who receive the most “for” votes are elected. Under majority voting, nominees must receive more “for” votes than “against” votes. A contested election occurs when there are more nominees than available board seats.
Consider a public company with two board seats up for election and exactly two nominees (uncontested), using a plurality voting standard. Suppose there are one hundred shareholders, but only one shareholder votes “for” the nominees while the remaining 99 abstain. Under plurality voting, both nominees would still be elected. While technically valid, this outcome hardly seems shareholder-friendly. In practice, plurality voting often functions as a rubber stamp, insulating directors from genuine accountability and allowing them to be elected without meaningful shareholder support.
In response to criticism, some boards have adopted resignation policies requiring directors who fail to receive majority support to tender their resignation. On the surface, this appears fair. However, the fairness is often undermined by provisions that allow the board to reject the resignation. In effect, a director who fails to secure majority support can remain in office if the board simply declines to accept the resignation. Investors should be cautious when such methods appear which are designed to entrench the board rather than respect shareholders.
Supermajority Vote Requirement
Most corporate and governance decisions are approved by a simple majority (more than 50%) of outstanding shares. However, some companies require higher (supermajority) thresholds -- 66%, 75%, or even 80% -- to approve actions such as removing directors, amending bylaws, or approving mergers.
Given that many shareholders are passive or disengaged, achieving such high approval thresholds can be difficult in practice. Consequently, existing governance structures -- and the management teams that benefit from them -- can become effectively locked in, limiting shareholders’ ability to enact change even when there is broad dissatisfaction.
High Salaries and Age
Another potential red flag arises when a large portion of the board is near retirement age and board compensation represents a primary source of income. In such cases, directors may be more inclined to align themselves with management—who influence board pay—than with shareholders.
This dynamic is especially concerning when directors and executives have limited personal capital at risk, holding mainly stock grants or options rather than shares purchased with their own money in the open market. In effect, such board composition usually weakens board independence and alignment with long-term shareholder interests.
"Technical" Methods to Subdue Shareholders
Companies can also discourage shareholder voice through procedural and technical hurdles. Failure to meet these requirements can result in the disqualification of shareholder proposals, including director nominations. Examples include:
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Extensive disclosure requirements regarding derivatives, synthetic positions, or short interests.
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Lengthy and complex questionnaires with tight completion deadlines.
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Mandatory venue selection (usually Delaware) for legal disputes, limiting shareholder flexibility.
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Fixed board sizes that restrict the addition of new directors.
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Provisions requiring shareholders to pay the company’s legal fees if they lose a case.
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Lengthy ownership thresholds to call special meetings.
Individually, these provisions may be defensible. Collectively, they can serve to suppress shareholder influence and protect incumbent boards.
Importantly, these are signals to be evaluated in context, not automatic ways to reject board and management. Reasonable arguments can often be made for their existence -- particularly when executives and directors have substantial “skin in the game,” demonstrated by meaningful open-market purchases of company stock and a proven record of long-term value creation. All factors should be considered before answering the question, in Mr. Buffett's words:
“You want to figure out ... how well that they treat their owners...Read the proxy statements, see what they think of — see how they treat themselves versus how they treat the shareholders. … The poor managers also turn out to be the ones that really don’t think that much about the shareholders, too. The two often go hand in hand.”
Abhay Srivastava is the Founder and Managing Member of AS Investment Partners LLC, a value investing firm (www.asinvpartners.com).
