April 05, 2010
Votes of No Confidence and Majority Voting for Directors
Posted by Mae Kuykendall

There are two primary reactions to involvement in a no confidence vote (discussed here) directed against a leader.  One is to never speak of it.  The other is to speak of it too much.  A better approach might be to follow the adage, "Never let a crisis go to waste," and undertake to raise the veil of mystery about an underanalyzed phenomenon, without dwelling on local details.  That would take a long time, since gathering information about the general phenomenon requires pulling a few people out of the sound-proofed structures they've built around their knowledge of a given case.  
Distaste for the vote of no confidence is fairly common.  In a university or nonprofit organization, fans of the corporate form cite the pleasant and predictable pattern of  authority, said to prevail in the corporation, as a better path.  The view partly rests on the notion of role differentiation, with a form near perfection in the corporation.  Workers work, managers manage, directors direct, and shareholders buy and sell shares.  If workers try to run the place by throwing out managers, they won't have time to work.  Workers should not interfere with managerial strategies developed to compete in the market; hence, university faculties should not have much power at all to govern, and certainly no credible say in dismissing a leader.  Further, if you like neatness, the corporate example is good at sweeping away ambiguity. Votes of no confidence lack a clear basis in the positive law of organizations (they are not in the bylaws) and they lack an assured result.  They are forms of moral suasion that partially mimic formal mechanics for constituting and dismissing a structure of authority.  Too messy for the corporate world, and thus too messy, period.
Let's think about the neatness of market discipline.  It seems easy enough to say that there is no such thing in the corporation as the vote of no confidence. Where employees are concerned, that's true enough.  The only cousin of the no confidence vote in corporate for-profit employment is the whistle blower.  Whistle blowing is not at all the same animal.  The key difference is that the whistle blower has nominal formal protection in statutes, but almost always winds up as the victim of an organization-imposed social death.  By contrast, when votes of no confidence succeed, an internal group achieves cohesion against a leader, who becomes a mirror image, at the top of the hierarchy, of the forlorn whistle blower.  Each--the whistle blower and the rejected leader--defies group opinion too openly and eventually pays.  So, employees in corporations simply do not do votes of no confidence.  Workers do not banish the CEO.  That part of the neatness story is true.
Until recently, that would seem to close the discussion about the neat lines of authority in the corporation.  But there are developments.  The development in the neat world of the corporation is the movement to require majority votes in election of directors.  A common form, which shows up in Senator Dodd's financial reform bill, requires that, in uncontested elections, a director must receive a majority of votes cast or else tender his/her resignation.  The board may reject the resignation but must disclose reasons for rejecting it.  The vote, as is said of votes of no confidence, does not create an automatic removal.  Rather, it places a burden on the board to act on the basis of supportable reasons, not merely assertion of formal authority.  A little messiness comes to the corporation. 
The messiness is altered through the adoption by corporations of procedures, but pressure on the board to dismiss directors who had run uncontested emerged as "just vote no" campaigns.  So the majority vote movement arose from improvisation by shareholder groups with a limited role in the formalistic organizational governance.  Groups, amorphous and evolving in composition over time, argued they had a bigger stake in good corporate governance than market solutions could advance.   Activists speaking for inchoate potential disaffected groups defined flawed leadership as a recurring concern.  They questioned the capacity of boards to act without open pressure from empowered voices outside the formal structure.  So, the corporate analogy, cited to move other institutions away from group voice, is losing some of its value as a model for neatness.  Majority voting for directors has the advantage of being covered in professional detail, open to observation and advocacy, and subject to assessment and empirical study that provide evidence of success.   As such, despite real differences in format and pattern, the corporate "vote of no confidence" may gain a vitality that can give heart to professional groups that resort to votes of no confidence to protest bad leadership. 

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