What is a zombie board director?

What is a zombie board director? A short corporate governance education guide to explain the phenomenon and why it’s a concern. 

Corporate governance relies heavily on the strength and effectiveness of its board members. However, in some cases, certain board members retain their positions despite losing the support of the majority of shareholders. This phenomenon gives rise to the concept of a “zombie board director.”

A zombie board director is a board member who retains their seat even after a majority of shareholders have voted against them at re-election time. 

It might automatically seem like something that shouldn’t be allowed, but corporate governance is rarely that straightforward. Despite the shareholders’ expressed preference for change, procedural loopholes, staggered board terms, or ineffective governance structures allow these directors to remain in power. This situation can lead to a board that is not fully aligned with its shareholders’ will, compromising its accountability, decision-making and strategic direction.

They primarily occur when a director doesn’t need support from at least 50% of shareholders to remain in their position. In these situations, directors can retain their seats with votes from a plurality of shareholders rather than an overall majority. 

Most countries do not allow this and have laws mandating that each director enjoy at least half of shareholders’ support. 

However, some states in the US allow for pluralities, so zombie directors can occur there. It also means that the entire phenomenon is mainly restricted to the US. However, before you think that this localises the issue, don’t forget how vast the US economy is and how many global brands are headquartered there. 

Experts have also noted increasing trends that may allow for zombie directors to appear in other jurisdictions, such as the UK or Italy.

From a corporate governance perspective, they’re definitely red flags because they indicate that core shareholder wishes may not be listened to. 

This is a core boardroom error. It means that a smaller group of people could have a disproportionate amount of power over the company, potentially ignoring aspects of fiduciary duty, unchecked by balanced decision-making. 

Many disagree with the concept of zombie directors on basic democratic principles, so the concept could also be a PR headache or a source of tension with activist investors.