Votes to Withhold

Suppose the incumbent directors of a company are running unopposed for re-election. For whatever combination of reasons, opposition has developed too late to meet the deadline for the filing of an alternative slate. But, now, opposition HAS developed.

Is there any significant manner in which it may express itself? Yes.

Stockholders may withhold their votes (or, as it is sometimes put, they may vote Withhold). Sometimes an impressive showing in a vote-withhold campaign will make the point.

The already-classic example of this played out at Disney in 2004 - 2005. It was in March of the first of those years that Disney's shareholders withheld 43% of the votes for the re-election of Michael Eisner as a member of the board.

The campaign that achieved this result was led largely by Roy Disney, Walt's nephew. Eisner remained on the board, but the other members reacted to the 43% vote by stripping him of the chairmanship. He stepped down as CEO a little more than a year later.

This comes to mind right now because I've been following the aftermath of a shareholders meeting at a company somewhat less visible than Disney: at Sparton Corp., a Michigan based manufacturer of circuit boards. There was a withhold campaign here, too.

in August one activist investor declared in a letter that he has "become increasingly troubled by the Board's inaction and acquiescence to Sparton's perennially underperforming management team—a team that has presided over a decades-long decline in both the Company's book and stock values." The meeting took place in October.

That investor, Andrew Shapiro, told me when I interviewed him early this month that he has been somewhat surprised that Sparton hasn't yet disclosed the size of the "withhold" vote, though he infers from what the company has disclosed that the number is 30%.

He also advocates what one might call a stand on fiduciary principle -- the members of the board should press the CEO to doff his other hat, as trustee of the Sparton Defined Benefit Pension Plan. This is a conflict: the pension plan has over-invested in Sparton common stock, Shapiro contends. This in turn has contributed to the entrenchment of the incumbent board.

Although the spelling of the company's name isn't quite right for it, I did try to work in some reference to a stand at Thermopylae in this blog entry. Really I did. I couldn't bring it off, though, unless this meta-reference counts.