How do board elections work?

How do board elections work? If you’re in the early stages of your corporate governance education, this guide is for you. 

Board elections are the crucial mechanism for proper governance. They’re the channel through which stakeholders voice their approval or disapproval – not only of people but of strategy, too.

Practically, they achieve one of the fundamental principles of corporate governance: that board members earn their right to govern through the democratic voice of those who own the company. 

They also ensure that the board adequately continues to represent the interests of the shareholders and possesses the requisite expertise for steering the company’s strategic direction. 

On principle, elections foster transparency and accountability – essential for the healthy functioning of corporate governance.

The short answer is there is no single process for elections. They differ between companies and industries.

To find the rules of elections in your business, check the company’s constitution and any other legal frameworks governing corporate affairs. 

You can read more about popular voting systems further in this article, but in general at election time:

• A nominations committee (often the chair, deputy chair, and CEO) will recommend a slate of candidates. 
• The board will propose candidates based on this recommendation. 
• The shareholders will review these candidates.
• The shareholders will vote.

They generally happen annually, alongside the company’s annual general meeting (AGM). There is no universal time of the year for this to occur, but it generally follows the company’s fiscal calendar and bylaws. The main goal is for shareholders to have a frequent say on how their company is run.

They can. However, many companies choose to stagger their board elections so that only some director spots are up for election at one time. They do this to ensure continuity and lessen the risk from a sudden change in leadership.

This is common. Sometimes, a director could simply resign, and other times, the board might create a new role to address a specific urgent need (like coping with AI). 

In these circumstances, companies may hold mid-year or EGM-style elections to fill that seat. They’ll usually use the same voting mechanisms.

It’s a mix, depending on things like the state of the company’s governance and how shareholder opinions differ. 

Smaller companies, private companies, or those with like-minded stakeholders might see their board elections pass as mere formalities with pre-determined outcomes. 

Bigger public companies, companies with more diverse stakeholders, and companies struggling with their current strategy could see their elections turn into battlegrounds as differing opinions vie for control. 

Activist shareholders, in particular, can play a huge role in elections. By nature, they are trying to “upset the status quo” and will likely always propose alternate candidates representing a complete change of direction. When this happens, the election outcome is not a given. Some might even receive wide coverage in the media because the company is so influential.

• Plurality voting. This has historically been the most common system. Candidates with the most votes are elected until all positions are filled. Uncontested elections—where the number of candidates equals the number of seats—are very common. They mean that candidates only need one vote to win a seat, which is a central point of criticism. Given that no candidate needs a majority to be elected, minority shareholders might feel left out.

• Majority voting. This has become more popular for uncontested elections, mainly in response to the criticisms above. It requires directors to receive more “for” votes than “against” at election time. Otherwise, they are not deemed to be elected. 
• Cumulative voting. This is a more proportional system that allocates one vote per share multiplied by the number of positions available. The shareholders can use all their votes on one candidate or split them. Minority shareholders often prefer this method for its flexibility.

If you’re facing an election (or running one), you should first understand the process from start to finish. To contextualise the vote, you should actively engage with shareholders and articulate a clear vision for the company’s future. Awareness of shareholder concerns and the competitive landscape is vital for securing or maintaining a board position.

Furthermore, you should familiarise yourself with regulatory changes and emerging trends in corporate governance and reflect on how they influence election outcomes. Proactive communication and transparency about skills, experience, and contributions can bolster your appeal to the electorate, enhancing your chances of election or re-election.