Magna International Inc. chairman Mike Harris received only a minority of shareholder support for his re-election earlier this year but remained on the company’s board, according to new disclosure prompted by a rare shareholder lawsuit.
Magna for the first time reported the detailed results of director elections held in May, showing that the former Ontario premier won just 38 per cent support from shareholders for his re-election to the Magna board.
The results show two other members of Magna’s board also garnered just 38 per cent support from shareholders, while all other directors got more than 84 per cent support.
The three men had comprised a special committee of Magna’s board that oversaw a controversial 2010 deal to buy out the dual-class shares held by Magna founder Frank Stronach for more than $865-million (U.S.), a premium of 1,800 per cent above market value at that time.
Mr. Harris was named chairman of Magna’s board following the annual meeting in May. He refused to comment Wednesday.
Magna’s voting results highlight a controversial gap in Canadian law, which allows directors to be elected despite winning less than 50 per cent voting support. Shareholders in Canada can only vote “for” a director or have their votes withheld, which means they are not counted. That means directors can be elected with any level of support – even a single vote in favour.
Adding to investor frustration, companies don’t even have to report detailed voting results. Corporate law allows them to simply report that a vote passed by a show of hands, even when votes were cast by written proxy and compiled by a scrutineer at the annual meeting.
The disclosure came after a trio of institutional shareholders filed a lawsuit Tuesday seeking the release of the voting data. The two other directors are former Boston University business dean Louis Lataif and Toronto accountant Donald Resnick.
Magna voluntarily released its information just hours after court action was launched Tuesday by the Canada Pension Plan Investment Board, RBC Global Asset Management and Connor Clark & Lunn Investment Management. The institutional shareholders claimed investors have the right to receive all information “necessary to make informed decisions” for voting at the annual meeting next year.
“This is not a look-back,” CPPIB senior vice-president Michel Leduc said. “We believe that for all shareholders to have a good line of sight in terms of future voting decisions, that this is very important information. I think the results tell the story.”
The vote for the three Magna directors was extremely low by normal standards in Canada. Data compiled by the Shareholder Association for Research & Education (SHARE) show directors of S&P/TSX composite index companies received an average of 94 per cent support in board elections this year.
SHARE director of law and policy Laura O’Neill said the only other directors she knows of who failed to win majority support this year were on the board of Quebecor Inc., where holders of class B subordinate shares voted just 43 per cent in favour of electing the entire board as a slate.
“Director defeats happen so rarely in Canada,” Ms. O’Neill said. “I really have only seen a smattering of them, when you’re looking at a slate.”
In its release, Magna said the vote was “impacted” by the voting recommendation issued in April by ISS Proxy Advisory Services, which recommended shareholders withhold their votes for the three directors because of the way they handled the buyout deal with Mr. Stronach.
Magna said the company has put in place a wide range of new governance practices since the deal was concluded, including adding two new independent directors to the board this year and formally separating the role of chairman and CEO. It also plans to introduce a majority voting policy in 2012, which would require directors to offer their resignations to the board if they fail to garner a majority of “for” votes in annual shareholder elections. If such a policy had been in place in 2011, it would have required the three members of the special committee to offer their resignations.