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Zombies on Board: Investors Face the Walking Dead

  • Fifty-four “zombie directors” currently haunt the boardrooms of 32 U.S. companies — continuing to serve this year despite having failed to win support by a clear majority of shareholders.
  • Dissatisfaction with CEO pay was highly correlated to a majority of these companies.
  • Plurality-based voting standards enabled most of these directors to serve, but majority voting requirements without binding resignation policies were also sometimes involved, allowing boards to override shareholder votes.

Zombies can appear anywhere, including America’s boardrooms. As Halloween approaches, it might be comfortable to think these brain-munching monsters live only in our imaginations, but for investors, zombies can be all too real. They can haunt corporate boardrooms for years, where their very existence can eat away at one of the most fundamental of shareholder rights: the right to duly elected representation.


How to Spot a ‘Zombie Director’

Part of the issue for those fighting against a surge in zombie directors — those who fail to gain majority shareholder support in annual elections yet continue to serve — is Zombies look just like other directors right up to the moment they turn. We identified 54 zombies lurking on the boards of 32 U.S. companies, based on a review of 2,313 constituents of the MSCI USA Investable Market Index (IMI).1 These are relatively small numbers, but, as so often happens with zombies, the number has grown: 35% higher than in 2016, based on the Council of Institutional Investors’ calculation, using an even larger group of U.S. companies.2

How Zombies Are Created

Consider what must occur to create such creatures. First, an individual must fail to win a majority of shareholder votes, a rare event at most public companies. Among the more than 2,300 companies and 21,640 directors we reviewed, the average level of shareholder support last year was 95.3%. Second, the director must be nominated for election or reelection to a board where plurality voting is the rule, or where, under certain majority-rule standards, their fellow directors are able to reject their duly submitted resignations. Only if the director survives these challenges do they arise undead. And by then, it may be too late.

While zombie outbreaks have almost never resulted in outright corporate fatalities, most companies with zombie directors scored lower on corporate governance overall, even when adjusted for the negative scoring impact of the zombie invasion itself.The lower the governance score, the higher the risk to investors. All but five of the 32 companies scored below the market average of 5.8, including nine of 11 companies with more than one zombie on board (see exhibit below).


Average Tenure of Zombie Directors Versus Corporate-Governance Scores


How to interact with this plot: Hover the mouse over the scatter points to view company-level data.


Signs of a Zombie Invasion

Our research found that the presence of zombie directors was highly correlated with shareholder dissatisfaction regarding pay practices. Of the 32 companies with zombie directors in our study, 25 had advisory say-on-pay votes on the ballot in 2020.4 Of these 25, less than half (48%) saw 10% or more of shareholders oppose their executive compensation plans.5

Vulnerability to zombie attacks was also closely related to the voting standard a company used to elect its directors. Of the 32 companies we identified with zombie directors, 88% had a plurality voting standard. Under this standard, shareholders cannot vote “against” a given director, but can only “withhold” their vote; in uncontested elections, directors can be legally elected by a single affirmative vote, even if all others are withheld.

In contrast, with a majority voting standard, nominees must receive a majority of votes cast to take their seats. If they don’t, they must submit their resignations to the board. But, beware. While this seems a sound defense against zombies, majority voting provisions, coupled with a nonbinding resignation policy, runs the risk of becoming toothless. We identified zombie directors at four different U.S. companies with a majority standard, all of whom tendered nonbinding resignations that were rejected by the rest of the board.

Unfortunately, binding-resignation majority election standards have been adopted by only about 15% of the U.S. listed companies within our coverage. Plurality-based standards are in force at nearly 44%, with nonbinding majority standards accounting for the other 41%.


How to Kill a Zombie: Binding Majority Election Standards

Source: MSCI ESG Research LLC as of Oct.12, 2020.


In other words, at a majority of U.S. listed companies, the potential for zombies rising up in the boardroom lies just beneath the surface. Or, in the words of zombie-survival expert Max Brooks, “The zombie may be gone, but the threat lives on.” 

And in the meantime, the walking dead still stagger through the boardrooms of the 32 companies in our analysis. This Halloween, shareholders should look through their peepholes before responding to a knock on their doors.


The author would like to thank Nilufar Kuchimova and Ahasan Amin for their contributions to this post.


1Based on the total number of constituents of the MSCI USA IMI rated by MSCI ESG Research as of Oct. 12, 2020.

2“CII Targets ‘Zombie’ Directors on Corporate Boards.” Council of Institutional Investors, Oct. 31, 2016.

3Under the MSCI corporate-governance scoring model, companies are penalized if their boards reject negative shareholder sentiment. Companies with a single zombie director are subject to a 1.5-point scoring deduction, while companies with two or more zombies experience a 2.0-point scoring deduction.

4Of the remaining seven companies, one had their most recent say-on-pay vote in 2017; two of them have not had their 2020 AGM yet; and the remaining four companies qualified for reduced-disclosure exemptions due to their “emerging growth company” status, as permitted by the 2012 JOBS Act.

5According to MSCI ESG Research’s definition, less than 90% support on pay packages suggests negative shareholder sentiment.

6 Brooks, M. 2003. “The Zombie Survival Guide: Complete Protection from the Living Dead.”


Further Reading 

CEO Pay: Trick or Treat?

Are CEOs Paid for Performance?

'Do entrenched boards help or hurt stock performance?