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Losers take all at Cablevision …

On Friday morning, we noted that the U.S. Senate had passed a bill requiring, among many other things, that candidates for corporate boards tender their resignation if they failed to get a majority of votes cast by shareholders. Little did we know at the time, but Cablevision Systems (CVC) was busily preparing to beam us a case example later in the day.

No, not some direct-to-cable snoozer on uncontested proxies. This example came via the Securities and Exchange Commission, by way of the 8-K the company filed at 4:58 p.m. Eastern time on Friday — the one giving the results of the company’s annual meeting earlier in the day.

The filing told us up front that the company’s “Class A shareholders elected all five director nominees on which they voted.” But turning to page 3, it became clear that it wasn’t quite as simple as it sounded. Here’s the table:


We’ll do the math for you: Reifenheiser, Ryan and Tese had more shares withheld than voted in their favor. None got more than 48.2% of the vote, and Tese got just 39.8%. Under the rules for any PTA election we’ve ever heard of, they would be out of a seat (and no longer eligible for the cash and stock that come with their board seats: $382,451 for Reifenheiser, $389,138 for Ryan and $228,331 for Tese).

And yet, as Cablevision indicated in the 8-K, they were indeed elected. Such is the curiosity of corporate-board elections.

The Senate bill isn’t law yet, of course. It first must be passed by the House or reconciled with the bill that chamber adopted in December, and it could face plenty of changes in the process. But what would have happened if the majority-voting provision had been in place in time for Cablevision’s annual meeting?

According to the bill text posted on the Senate Banking Committee site, all three men would have had to tender their resignation. The board would then have a choice: Accept the resignations within a “reasonable” amount of time (to be determined by the Securities and Exchange Commission) or vote unanimously to decline them. Should the board decline the resignations, it would have 30 days to “make public” its decisions, “together with a discussion of the analysis used in reaching the conclusion.”

Given Cablevision’s dual-class system, the Class A shareholders are a distinct second fiddle to their Class B counterparts. They elect separate directors — not a single Class B share went against the dozen directors they chose on Friday — and in matters in which both classes vote together, each Class B share counts as 10 Class A shares. The B shares, of course, are firmly in the hands of the Dolan family; its patriarch, Charles F. Dolan, remains chairman, and his progeny and relations are scattered throughout the upper echelons of the company. All told, our colleagues in Morningstar’s equity-research arm have observed, they have more than two-thirds of the voting power and less than a quarter of the economic interest in the company (which may help explain the nice perks we’ve previously reported).

So in the end, majority rule in the Class A vote might not have made all that much difference in the company’s governance. But at least shareholders wouldn’t find themselves represented by directors they tried to boot off the board.

Image source: public.resources.org via Flickr