Governance Matters: Don’t Overlook Board Oversight

25 August 2025

3 min read

Director elections can be a powerful tool for investors to weigh in on ineffective boards.

Most conversations around proxy voting focus on shareholder proposals and executive compensation. Meanwhile, the most significant votes tend to fly under the radar: director elections. Boards of directors play a vital role in representing shareholder interests by overseeing a company’s strategic direction, monitoring management and ensuring accountability for the creation of long-term value.

Director-election votes can be a powerful tool for weighing in on material governance issues. Increasingly, investors are doing just that. In the 2024 proxy season, directors who chaired their board’s nominating and governance committees received 5% more dissenting votes on average, reflecting investors’ willingness to hold specific directors accountable for board composition and broad governance concerns.

Beyond conventional governance issues like director independence or shareholder rights, we have leveraged director elections to convey our perspective on issues ranging from product safety and quality to executive compensation to strategic transactions.

A Higher-Quality Board May Bolster Performance

Our votes are always aimed at improving investment outcomes by promoting good governance. While there are countless reasons that a company may underperform its peers, we have found a clear link between our assessment of a board’s effectiveness (as measured by our director votes) and a company’s future stock performance.

Since 2017, US companies with boards warranting our full support have gone on to deliver stronger median and average stock returns the ensuing year (Display). The results show a strong, consistent correlation across nearly all sectors and company sizes. Simply put, when a board doesn’t meet our expectations, it’s generally a leading indicator of underperformance.

US Companies with AB-Approved Boards Have Outperformed

Annualized Total Stock Return by AB Director-Election Vote: Jan 2018–Jun 2025 (Percent)

Median return: 7.4% with our full support, 2.4% when we voted against 1 director, & 1.2% when we voted against more than 1.

Historical analysis does not guarantee future results.
Returns are based on the annual total stock return of individual companies in the calendar year following a shareholder meeting, grouped into equal-weighted baskets according to AB’s director-election vote (excluding proxy contests). Sample comprises 17,664 firm-year observations based on available US proxy voting data from 2017 through 2024. Fully supported board category comprises 9,704 observations; opposed one director category comprises 4,845 observations; opposed multiple directors category comprises 3,115 observations.
Through June 30, 2025
Source: Institutional Shareholder Services, International Data Corp. and AllianceBernstein (AB)

These findings reinforce our view that board effectiveness is a material investment consideration—and that director elections are among the most important votes an investor can cast.

What Makes a Board Effective?

The board of directors is critical in overseeing management’s performance, composition and compensation. An effective board is necessary to managing the risks to a company’s operations and financial performance. Directors of public companies are ultimately responsible for ensuring that management acts in the best financial interests of all shareholders. Effective governance is often most visible during corporate turnarounds, where alignment between management and shareholders is essential.

No matter the company or sector, effective boards are defined by their composition, structure and actions. High-quality board composition entails majority-independent oversight, and a variety of skills and backgrounds, without attendance issues or excessive outside commitments. Structural mechanisms such as formal board committees, majority-vote standards and annual director elections ensure accountability. Lastly, boards demonstrate effectiveness through their actions: aligning pay with performance, ensuring disciplined allocation of capital and engaging with shareholders.

Naturally, not all boards meet these criteria. If we determine that a board’s structure or actions aren’t aligned with our clients’ best financial interests, we may hold relevant directors accountable, which is consistent with our fiduciary duty.

How does this work in practice? At a major US bank, we recognized historical governance shortcomings such as fraud, risk-management failures, workplace misconduct and broad misalignment with shareholders. We then engaged* in a multiyear dialogue with its board and senior leaders, consistently voting against relevant directors. Ultimately, the bank implemented improved oversight mechanisms as a part of a larger cultural overhaul, in addition to improving management incentives.

Keep Your Eye on the Board

We believe that investors should stay focused on a simple question: Is the board delivering for shareholders? Our research shows a clear connection: disappointing boards tend to deliver disappointing results, while boards earning our full support historically outperformed in the following year.

Boards perform best when they know investors are watching. Director-election votes may not make headlines, but they’re where investors’ voices matter most.

*AB engages issuers where it believes the engagement is in the best financial interest of its clients.

Landon Shea, Investment Stewardship Associate, and Cole Moore, Investment Stewardship Analyst, contributed significantly to the research for this blog.

The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

About the Author

This information is for exclusive use of the wholesale person to whom it is provided and is not to be relied upon by any other person. It is not intended for retail or public use and may not be further distributed without prior written consent of ABAL.
This webpage has been prepared by AllianceBernstein Australia Limited (“ABAL”)—ABN 53 095 022 718, AFSL 230 698. Information in this webpage is only intended for persons that qualify as “wholesale clients,” as defined by the Corporations Act 2001, and is not to be construed as advice. This webpage is provided solely for informational purposes and is not an offer to buy or sell securities. The information, forecasts and opinions set forth in this webpage have not been prepared for any recipient’s specific investment objectives, financial situation or particular needs. Neither this webpage nor the information contained in it are intended to take the place of professional advice.
You should not take action on specific issues based on the information contained in this webpage without first obtaining professional advice. Past performance does not guarantee future results. Projections, although based on current information, may not be realized. Information, forecasts and opinions can change without notice and ABAL does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained in this webpage, ABAL does not warrant that this webpage is free from errors, inaccuracies or omissions. ABAL disclaims any liability for damage or loss arising from reliance upon any matter contained in this webpage except for statutory liability which cannot be excluded.
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