Why Director Elections Are the Key to Stronger Corporate Governance

Discussions about proxy voting often center on executive pay packages and shareholder proposals. Yet, the most consequential votes frequently receive less attention: the election of directors. Boards of directors are crucial to protecting shareholder interests by guiding strategy, overseeing management, and ensuring accountability for long-term value creation.
Voting in director elections gives investors a strong mechanism to express views on governance matters. That influence is becoming more visible—during the 2024 proxy season, directors who led nominating and governance committees faced about 5% more opposition votes on average. This shift highlights investors’ readiness to scrutinize and hold specific board members accountable for governance and board composition concerns.
Director votes can also be used to send signals on wider issues. Beyond traditional topics like director independence or shareholder rights, investors have employed these elections to voice perspectives on areas such as product quality, executive pay, and even strategic corporate moves.
Stronger Boards, Stronger Results
The goal of our voting approach is always to strengthen governance and, in turn, improve investment outcomes. While many factors contribute to why one company may lag behind its peers, we’ve consistently observed a clear connection between the quality of a board—as reflected in our voting support—and the company’s subsequent performance.

Since 2017, U.S. firms with boards that earned our full backing have tended to outperform in both median and average stock returns the following year. This trend has held across industries and company sizes, reinforcing the idea that ineffective boards often foreshadow weaker performance.

Defining an Effective Board
Boards play a central role in evaluating management’s effectiveness, composition, and pay. Their oversight is vital in safeguarding a company’s financial health and risk profile. Ultimately, directors are accountable for ensuring management decisions serve the best interests of all shareholders. These responsibilities are especially apparent during times of corporate restructuring, when alignment between executives and investors is most critical.

Effective boards share common features:

Not all boards meet these standards. When we conclude that a board’s structure or behavior fails to serve shareholder interests, we may withhold support from relevant directors as part of our fiduciary responsibility.

A Case in Practice
At a large U.S. bank, we identified persistent governance weaknesses—including fraud, risk mismanagement, workplace misconduct, and poor alignment with investors. Over several years, we engaged with its leadership team and consistently withheld votes from key directors. As a result, the bank undertook major governance reforms, strengthened oversight, and improved incentive structures as part of a broader cultural reset.

Keeping the Focus Where It Counts
For investors, the essential question remains: is the board advancing shareholder value? Our analysis demonstrates that weak boards often correspond with disappointing outcomes, while strong, well-supported boards are linked with superior results.

Director elections rarely dominate headlines, but they remain one of the most impactful ways for investors to make their voices heard.