Director Disqualification Bylaws

By Cydney Posner

This article in the WSJ warns again about problems with director disqualification bylaws. A number of companies have adopted bylaws that disqualify director candidates who receive compensation or expense reimbursement for their candidacy unless they disclose the compensation and who is paying it. However, several companies have adopted bylaws that would disqualify compensated director candidates even if they provide full disclosure. These companies are running into headwinds from activist investors and shareholder advisory firms, such as ISS. (See my email of 11/21/13.) The article reports that, last month, ISS warned that adopting this form of disqualifying bylaw without a shareholder vote could put a company's directors at risk for "no" or "withhold" recommendations. So far, ISS' negative recommendations in this context have adversely affected director vote totals at some companies. Reportedly, five companies that adopted this form of bylaw have subsequently repealed them, presumably under pressure from ISS or activist shareholders.

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