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Democracy: Corporate-style

Most people understand that when you vote in an election — whether for your local school board or for president — your vote means something and that the person who gets the largest number of votes wins.

And then there’s what happens at annual meetings for publicly traded companies big and small. People vote (or don’t, since a large number of votes are often broker non-votes). But even when a director loses the vote, nothing much happens. In other words, they remain on the board, even after being rejected by a majority of shareholders.

Take this filing made by Paramount Group Inc. last Friday after 4 pm. Like a lot of 8-Ks these days, this one disclosed voting results at the annual meeting. What caught my eye is that one of the nine directors up for election — Katharina Otto-Bernstein — received more votes against her continued presence on the board than in favor. Given that Ms Otto-Bernstein had been on the board for the past decade, the result was somewhat surprising. Luckily, the company provided a helpful footnote:

As noted, Ms. Otto-Bernstein received less than a majority of the votes cast in connection with her election to the Board and in accordance with the Company’s Corporate Governance Guidelines, Ms. Otto-Bernstein offered to tender her resignation as a director of the Company on May 16, 2024. The Board rejected Ms. Otto-Bernstein’s offer to tender her resignation and reappointed Ms. Otto-Bernstein to serve as a director for a term expiring at the annual meeting of stockholders in 2025 and until her respective successor has been duly elected and qualified or until her earlier resignation or removal. The Board directed the Company to engage its stockholders on any issues that may have led stockholders to vote against Ms. Otto-Bernstein.

Now Otto-Bernstein isn’t an ordinary director. She is the daughter of Otto Group founder Werner Otto and according to Paramount’s most recent proxy, owns more than 5.6% of the company’s stock — much more than all of the other directors combined. She doesn’t sit on any significant committees. The only thing that really sticks out is that she didn’t attend last year’s board meeting and she attended fewer than 75% of the five board meetings that were held last year, which may rankle some. But given that that information is buried deep in the proxy statement and not in the same place, it seems hard to fathom that was the reason behind all of those no votes.

It will be interesting to see if those newly engaged shareholders explain why they only voted against Ms. Otto-Bernstein. Perhaps she will attend more meetings this year. After all, even for a busy person, attending fewer than 75% of 5 board meetings isn’t a great record, especially since we don’t know how many fewer than 75% were attended.

But either way, it’s a reminder that corporate democracy works very differently. Even when a director is voted off the island, they still get to stay!