Activism

Phantom votes lead to resignation demand

CtW Investment Group has demanded the resignation of Roger Headrick as a director of CVS/Caremark, the US pharmacy chain, over concerns that he only achieved his re-election as a result of “phantom votes”. Phantom votes are those cast by brokers with no economic interest in the company, and are often automatically cast in favour of the board.

Headrick retained his board seat by a margin of 153.4m shares. However, CtW said as many as 264.8m votes appear to have been cast by brokers with discretionary authority over un-voted client shares. Assuming all these votes were cast in favour of management, CtW calculated that disallowing them would leave Headrick with only 43% of the “true” shareholder vote cast in his favour.

CtW argued that for CVS to allow Headrick to be elected on the strength of phantom votes would violate the principle of the board’s majority vote policy.

It should, however, be noted that it remains the duty of the lender to take responsibility for and vote their own securities – lenders have a right to recall their borrowed securities before a vote.

June 2007