Both CII and the SEC's Investor Advisory Committee have urged the SEC to amend the proxy rules to enable use in a contested board election of universal proxy ballots that would list all board candidates, regardless of the nomination source. A universal proxy ballot would allow shareholders to pick and choose among the directors from various nominees more easily.

Currently, outside of actual in-person attendance at the shareholders' meeting, it is difficult for shareholders to vote for a combination of dissident and management nominees in contests for control of the board. This is because the bona fide nominee rule provided in Rule 14a-4(d)(1) under the Securities and Exchange Act of 1934 (Exchange Act) requires that nominees consent to be listed, unless the contest falls within the short slate exception.

Patrick McGurn, Executive Director and Special Counsel of Institutional Shareholder Services Inc. (ISS), agrees that the SEC should consider relaxing the bona fide nominee rule. "The 2014 proxy season has laid bare the antiquated and inflexible nature of the SEC's existing multi-card rules. The SEC's 20-year-old short slate workaround has never taken hold due to its complexity and the perception, real or imagined, that it will confuse voters," says McGurn.

McGurn posits that the existing rules appear to have actually tipped the playing field in the direction of dissidents. "During the current season many incumbent boards have settled contests and typically picked up dissidents' running solicitation and legal tabs as a way of cutting their potential seat losses. In a number of recent fights, incumbent boards have slashed their slates, but not the number of seats up for election, to 'leave room' for the election of dissident nominees. Opting to vote for such partial slates on management cards limits proxy voters' say as to which dissident nominees will fill the boardroom vacancies and could advantage candidates with the strongest ties to the dissidents. As such, use of a universal ballot could help to level the playing field."

While the vast majority of S&P 500 companies have adopted some form of majority voting for uncontested director elections, among the Russell 3000, plurality voting continues to be the dominant practice. CalPERS, with $265 billion in assets, identifies action on this issue as a regulatory priority (see Box, CalPERS Governance Priorities for SEC Attention). CalPERS and CII would like the NYSE and NASDAQ to amend listing rules to include a requirement that directors resign if they do not win a majority of the votes cast in uncontested elections.

According to Yerger, "All companies should adopt meaningful majority voting for directors." CII encourages companies to voluntarily adopt majority voting. Under Section 2.2 of CII's Corporate Governance Policies, directors in uncontested elections should be elected by a majority of the votes cast, while plurality voting should apply in contested elections (where there are more candidates than board positions available). Directors who fail to receive a majority of the votes cast in an uncontested election should not be allowed to serve under state law holdover rules. Instead, they should step down as soon as practicable and not be reappointed.

For the by-laws or certificate of incorporation of a Delaware or New York public corporation requiring majority voting of stockholders for the election of the board of directors, see Standard Clause, By-laws or Certificate of Incorporation: Majority Voting Provision.

For a sample form requiring the directors of a Delaware corporation to offer to resign in the event of certain triggering events, see Standard Document, Director Resignation Policy.

CalPERS and CII would like shareholders to have the ability to nominate directors in the company's proxy statement. CalPERS continues to favor a regulatory mandate. It has indicated in its governance priority list of regulatory reform issues that the SEC should revisit its attempt to impose proxy access on all companies through SEC regulation, addressing as necessary the concerns raised by the DC Circuit when it invalidated Rule 14a-11 under the Exchange Act in 2011 (see Business Roundtable, 647 F.3d 1144).

In the absence of a regulatory mandate, CII calls on companies to voluntarily provide proxy access. Section 3.2 of CII's Corporate Governance Policies states that companies should provide access to management proxy materials for an investor or group of investors that have held in aggregate at least 3% of voting stock for at least two years to nominate less than a majority of directors up for election.

Whether the right to vote is proportional to the size of an investor's holdings is an issue that relates to director elections, but it also extends to all matters on which shareholders vote. Dual-class or multi-class share structures with unequal voting rights have been used in a number of high-profile IPOs in the past several years. These structures have reignited the debate about whether control rights disproportionate to ownership interests should be allowed.

CII includes this issue on its list of priorities for reform, and has requested that both the NYSE and NASDAQ propose a rule for SEC approval that would prohibit:

Absent a listing rule prohibition, CII advocates that companies voluntarily avoid issuing stock with unequal voting rights. According to Section 3.3 of CII's Corporate Governance Policies, each share of common stock should have one vote and companies should avoid classes of common stock with disparate voting rights.

Shareholder concern over a perceived lack of appropriate turnover on US boards and its impact on director independence and diversity is leading to increased focus on long-tenured directors. Very few US companies impose term limits on directors (just 3% according to the 2013 Spencer Stuart US Board Index). Retirement ages, which tend to be flexible, have been rising. However, the average tenure of directors in S&P 500 companies is less than nine years, according to Spencer Stuart.

CII amended its Corporate Governance Policies in 2013 to provide that when evaluating director independence, consideration should be given to a director's years of service on the board. According to Section 7.1, "Extended periods of service may adversely impact a director's ability to bring an objective perspective to the boardroom." A similar philosophy underlies the UK rule that after nine years of service a director no longer qualifies as independent. ISS considers tenure of more than nine years to be excessive for purposes of its Governance QuickScore rating, but it does not set a recommended term limit or retirement age in its proxy voting guidance.

The composition of the board in relation to the specific needs of the company is becoming an area of increasing focus for institutional investors. While majority director independence has been an important reform, there is some concern that it has at times come at the expense of the deep industry expertise that companies require at the board level. Shareholders can be expected to refocus on how the education and experience of directors relate to the ability to provide sophisticated oversight of the business and business risks.

CalPERS has emphasized in its governance priority list that the SEC should monitor the adequacy of its enhanced disclosure requirements on both diversity, and director and director nominee qualifications. Both diversity, and director qualifications are areas that shareholders are increasingly focused on.

"While many boards profess to conduct in-depth boardroom and individual director evaluations, most directors admit that such programs lack teeth. Going forward, directors must be able to demonstrate that such evaluations are robust and drive continuous refreshment efforts," according to McGurn.

CII issued a report in September 2014 emphasizing that investors want more information about the board evaluation process. The report, Best Disclosure: Board Evaluation, provides examples from 2013 and 2014 proxy statements of what CII considers "best in class" disclosure relating to board evaluations. These examples fall into two categories:

The CII report recognizes that the latter type of disclosure is uncommon among US companies, but is more prevalent in the UK, Europe and Australia.

For key considerations in formulating a board's evaluation process, see Issues to Consider Before Conducting a Board Evaluation: Checklist.

For forms of questionnaire for self-evaluation, see Standard Documents, Board Self-evaluation, Audit Committee Self-evaluation, Compensation Committee Self-evaluation and Nominating and Corporate Governance Committee Self-evaluation.