Bob Iger, the former CEO and chairman of the board of The Walt Disney Company (“Disney”), wrote an autobiography that came out in 2019.  If you haven’t read the book, it turns out (surprisingly enough) that, according to himself, he is not just a good businessman, but a great guy. However, the book is worth reading if only for one particular anecdote about Steve Jobs­­.

At the time of Disney’s 2010 annual meeting, Jobs had sold Pixar to Disney and, as a result, was both a member of Disney’s board and Disney’s single largest stockholder, with 7.1% of its outstanding shares:

Not long after that, at the 2010 Disney shareholders meeting, Alan Braverman, our general counsel, came up to me and said, “We have a huge no vote on four board members.” “How huge?” “Over a hundred million shares,” he said. I was baffled. Normally, there might be a 2 to 4 percent no vote at the most. A hundred million shares was way beyond that. Something was off. “A hundred million shares?” I said again. The company was doing quite well by then and our board members were well respected. There’d been no public criticism that I knew of, no warnings that something like this might come up.  It didn’t make any sense. After a minute, Alan said, “I think it might be Steve.” He had all those shares, and he voted against four of his fellow board members. This was one day before we revealed the vote. Announcing that four board members had received a gigantic withhold vote would be a public-relations nightmare. I called Steve. “Did you vote against four board members?” “I did.” I said, “First of all, how can you do that without talking to me about it? It’s going to stick out like a sore thumb. I don’t know how I’ll explain it publicly, and I don’t know how I’m going to explain it to them. It’s going to eventually come out that it was you. Plus, they’re four good board members!  Why are you voting against them?” “I think they’re a waste of space,” he said. “I don’t like them.” I started to defend them, then immediately realized that wasn’t going to work with Steve. I wasn’t going to convince him he was wrong. “What do you want me to do?” he finally said. “I need you to change your vote.” [1]

As Warren Buffett has noted, when it comes to directors “’Good,’ of course is a code word.” For context, Buffett then added:

When seeking directors, CEOs don’t look for pit bulls. It’s the cocker spaniel that gets taken home.[2]

Not to try to read Jobs’ mind, but maybe he believed that he should only be voting for directors who were affirmatively contributing to the board and focused on creating value, not directors who just took up space. Maybe Jobs was thinking that Disney stockholders (of which he was the largest) deserved the same criteria Buffett demands of Berkshire Hathaway directors:

At Berkshire, we will continue to look for business-savvy directors who are owner-oriented and arrive with a strong specific interest in our company. Thought and principles, not robot-like “process,” will guide their actions.[3]

Unfortunately, however, the notion that any director candidate (incumbent or not) should earn a stockholder’s vote seems to be a minority view. Instead, the prevailing view appears to be that incumbent directors deserve to be re-elected so long as they are good (i.e., treat the CEO with cocker spaniel-like deference) and meet specific expectations (i.e., conform to robot-like processes) articulated by proxy advisors and large asset managers—expectations that become ever more specific (and ever more unrelated to actual financial performance) every year.

Carl Icahn recently appeared on CNBC and pointed out that corporate America is not so much an example of corporate democracy but corporate feudalism.[4] Certainly, the notion that incumbent directors are entitled to re-election even if they are a waste of space seems more consistent with a feudal system than a democratic one. Icahn pointed out that stockholder activism was a necessary check on boards that embraced corporate feudalism, stating that “if you don’t have activism, you don’t have accountability.” Tsarist Russia was famously described as “autocracy tempered by assassination”— American corporations are rarely true autocracies and activist stockholders are not assassins, but you get the idea.

Just as a side note, to the extent that American corporations embody corporate democracy, it is a strange sort of democracy. First of all, most of the time, only one party (the incumbent board) puts up candidates for election to the board. Second, in rare occasions when another party (an activist stockholder) wants to nominate candidates, the rules for nominating candidates are (i) set by the other party (the incumbent board, which doesn’t have to follow the same rules) and (ii) are generally (and intentionally) as onerous and burdensome as possible under applicable law. To top it all off, all the voters (stockholders, including the activist stockholder that nominated candidates to run against the incumbent board’s candidates) have to pay for one party’s (the incumbent board’s) election expenses (regardless of whether they vote for that party’s candidates), while the other party (the activist stockholder) bears the entire cost of their campaign.

Stockholder activism might be less necessary, and corporate democracy more vital, if more stockholders took Jobs’ approach to voting in director elections and decided on their own (without recourse to “one size fits all” scorecards that are ill-suited to measure the quality of a board’s management of shareholder property) that some directors are just wasting space and should be replaced (even —or maybe particularly—if the CEO thinks they are good).

[1] Robert Iger, The Ride of a Lifetime: Lessons Learned from 15 Years as CEO of the Walt Disney Company (2019).

[2] Berkshire Hathaway 2019 Annual Letter to Stockholders

[3] Berkshire Hathaway 2019 Annual Letter to Stockholders