This article is part of an ongoing seriesabout the Shareholder Bill of Rights currently in Congress. Together, we can ensure that this bill truly represents our interests as shareholders and individual investors.  

In May, shareholders voted out all three Pulte Homes (NYSE: PHM) directors up for re-election over concerns about the company's corporate governance. Yet none of the three lost their positions as a result of the vote, because other board members simply reappointed them.

Strange as it may seem, not all companies have a "majority" voting structure requiring directors to have a majority of votes cast to stay on the board. Under so-called "plurality" systems, directors can keep their seats so long as they receive onevote.

So far this year, a record 93 board members failed to receive 50% of votes cast by shareholders, The Wall Street Journalreports. What's all the more startling is that not a single board memberwho lost these elections actually stepped down.

The current situation
Since when did the meaning of "elected" become so complicated, hanging chads aside? In addition to the majority/plurality divide, there's also the question of whether boards should be "staggered" or not.

Some companies -- among them names such as E*Trade (Nasdaq: ETFC), CarMax (NYSE: KMX), and BorgWarner (NYSE: BWA) -- stagger elections such that not all of the board is up for re-election each year. While that approach doesn't entirely lack merit -- see our pros, cons, and comments boxes below -- most folks consider staggered elections a tool that insiders use to keep themselves in the owner's box and you in the cheap seats.

Some boards, including those of Procter & Gamble (NYSE: PG), IBM (NYSE: IBM), and Clorox (NYSE: CLX), instead opt for annual elections for the full slate of their directors. In theory, that puts directors' feet to the fire regularly, which acts in the best interest of shareholders.

What the bill would do
"Each member of the board of directors of the issuer shall be subject to annual election by the shareholders. ... Directors in uncontested elections shall be elected by a majority of votes cast." 

In plain English, that means that you, the shareholder, would get the right to vote whether you want to keep each member of the board of directors each and every year -- whether that seat is contested or not. In contested elections, whoever gets the most votes wins. In uncontested elections, directors would need at least 50% support to keep their positions.

The pros and cons
Majority-voting rules for uncontested elections seems like a no-brainer. Boards are supposed to represent a company's owners. If a majority of a company's ownership doesn't want a director to represent them, he or she should resign. Corporate Library founder Nell Minow told us that requiring uncontested incumbents to receive a majority of votes cast is absolutely essential to making boards accountable to shareholders. Even John Castellani of Business Roundtable, a vocal opponent of the Shareholder Bill of Rights, told us he supports majority voting, though he noted that most of his member companies have adopted it on their own.

The merits of holding annual elections is less black-and-white. The big pro is that more frequent elections equates to more opportunities for shareholders to affect change. If shareholders aren't happy with a board's performance, shareholders could organize to kick board members to the curb. Ideally, boards would give more credence to shareholders' goals and concerns knowing that their cushy board seats were on the line each and every year. Indeed, separate studies by Harvard and SEC economists show that staggered boards lead to lower shareholder value.

In terms of cons, look no further than your elected officials. It is no secret that our country has been running on deficits for years, or that we can't afford our projected commitments to programs like Social Security and Medicare. Despite that, though, making the correct-but-tough choices on these third rails eludes us, probably heavily for the reason that your local Congressman would rather pass the buck on long-term problems than possibly sacrifice his seat, status, and career. Continued...