A few months ago, I wrote a blog post about activists running a slate of dissident directors for the DWS Dreman Value Income Edge Fund (NYSE:DHG). DHG announced the result of the vote today in a press release which was highly misleading:
T he final results for the 2010 Annual Meeting of Stockholders of the Fund held on May 24, 2010 (the “Annual Meeting”) certified by the independent inspector of elections indicate that a quorum was present but none of the Class III Director nominees received a sufficient number of votes to be elected as a Director. Therefore each of the four incumbent Class III Directors (Ms. Jean Gleason Stromberg and Messrs. Henry P. Becton, Paul K. Freeman and William McClayton) will continue to serve as a Class III Director until such time as his or her successor is elected and qualifies.
What the press release failed to say was that a healthy majority of the shareholders that voted (57%) chose the dissidents board led by Arthur Lipson over the incumbent board.
But the DWS funds have a shareholder-unfriendly rule that states that gaining a majority of the votes is not enough. The vote total must exceed 50% of the outstanding shares of the fund. In this case, only 52% of the shareholders voted, so the Lipson dissidents acquired about 30% of the total shares. For most closed-end funds, it is nearly impossible to get over 50% of the shares to vote because of shareholder apathy, so the effect of this rule is to entrench management.
Imagine if our local elections for mayor worked the same way. In some off year elections, voter turnout is less than 50%. Using the DHG election rule, incumbents would keep their jobs even though their opponent got more votes!
DWS management appears to be ignoring the shareholder vote so far, but I am hopeful that they will be embarrassed by the vote and will soon introduce some measures to reduce the fund’s discount to NAV.
Full disclosure: Long DHG. Voted with the 57% for the dissident board.