Abstain from voting

When the time comes for a board of directors to vote, one of the options members have is to abstain from voting. To abstain can be a difficult decision, but there are several reasons why a board member may choose to do so.

In this article, we’ll explore what it means to abstain from voting and why it’s an important part of the voting process for board members.

We’ll also cover:

• What abstaining means
• The guidelines surrounding abstaining
• Why a board member may choose to abstain
• The impact abstention has on the organization
• The best practices for abstention

What does it mean to abstain from a vote?

To abstain from voting means a board member chooses not to vote during the voting procedure. There are several reasons why they may make this decision, which can often be from a moral or legal perspective.

Some consider abstention to be a missed opportunity to contribute towards a decision, particularly if the decision is significant. Others also view it as unofficial disapproval, dissatisfaction or neutrality.

In parliamentary procedure, Robert’s Rules of Order recognizes that abstention is a legitimate choice during a vote. When a meeting is governed by this rule, board members aren’t required to vote, and the result is based purely on those who chose to vote. It recognizes that abstention from a vote is a sign of neutrality and that if there’s a large number of abstentions, then it should prompt further discussion and review.

Legal and regulatory guidelines for abstention

Because of the divisive nature of abstention, it’s usually governed by legal and regulatory frameworks that outline the rights of the voter and the implications of abstaining. This is especially true in board meetings where the implications may impact corporate governance, shareholders and compliance.

Here are some of the guidelines that regulate abstention during votes:

• Corporate bylaws: Bylaws specify whether abstentions count towards quorum requirements (the minimum number of board members required to ensure a vote is valid).
• State and federal laws: States have their own guidelines that outline the rules around abstaining. For example, Delaware General Corporation Law (DGCL) states that a board member is permitted to abstain without affecting the quorum.
• SEC regulations: The Securities and Exchange Commission (SEC) requires organizations to disclose the results of votes, including abstentions, to ensure complete transparency.
• Proxy voting guidelines: When proxy statements are filed with the SEC, they must include information on the impact of abstentions to keep shareholders informed.
• EU shareholder rights directive: In the European Union (EU), the Shareholder Rights Directive (SRD II) highlights the importance of informed voting and the fact that shareholders are free to abstain.

Reasons for abstaining from voting

Why would a board member abstain from voting? Well, there are many reasons why a shareholder may feel it necessary, which means it often isn’t the passive choice. In some instances, it can be just as impactful as voting.

Here are some of the reasons for abstaining from voting:

• A lack of suitable options or candidates
• Cynicism or a lack of trust
• A form of protest
• Personal bias or a conflict of interest
• Ethical considerations
• Moral beliefs
• A lack of information or understanding
• Voting fatigue
• Administrative or logistical blockers

Impact of abstention on corporate decisions

Abstention can have a major impact on the voting process., especially during shareholder meetings when the board must continue to fulfill its fiduciary duties and protect the interests of shareholders.

While abstentions don’t count as a yes or no in the final vote, they can still influence the final result of a vote. Below are some of the key ways abstention can impact corporate decisions.

Effects on voting outcomes

There are several ways abstention can impact the outcome of a vote:

• Reduced quorum, where a minimum number of votes must be cast for the result to be considered valid
• The possibility of stalemates and the failure of proposals because of a lack of a majority
• An impact on closely contested votes which can turn them into a swing vote

Implications for board decisions

Abstention can also have implications for the board, particularly if abstaining is a common occurrence:

• Shareholders can lose trust and confidence in the board
• Board members can be considered as lacking accountability
• It slows down the decision-making process

Broader corporate implications

There are also further implications that mean abstention can have a wider impact on the organization:

• Frequent abstentions may highlight a flaw in the company’s governance structure
• It may have a major impact on shareholder engagement
• It may affect perception and reputation
• It may influence executive compensation
• There may be legal and regulatory implications

Best practices for abstention

While abstaining from a vote is a perfectly legitimate response during the voting process, it can be challenging and have a major impact. For that reason, there are best practices to follow to minimize the negative impact on the decision-making process and corporate governance.

Some of the best practices for different types of voters include:

Shareholders

• Seek clarity before voting or abstaining
• Abstention should be used as a way to show disengagement rather than disagreement
• Consider how abstention may impact the organization’s governance

Board members

• Encourage transparency, accountability and engagement
• Address abstention trends to identify room for improvement
• Respect conflicts of interest
• Adhere to legal and regulatory guidelines at all times

Corporate secretaries

• Ensure accurate tracking and reporting, as well as transparency when communicating abstention data
• Reduce abstention by providing clear data and processes
• Maintain legal compliance

Proxy advisors

• Undertake thorough and unbiased research ahead of each vote, so there is as much information as possible
• Provide clear and actionable advice, including the impact of abstention
• Address any conflicts of interest transparently
• Encourage engagement

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