Back in June, Energy East agreed to declassify its board of directors, thus ending the staggered terms. Was this yet another case of a company voluntarily practicing good governance in this Sarbanes-Oxley world?

Sort of. Because while it declassified its board, at the same time the company discontinued its practice of allowing cumulative voting of shares.

Under the arrangement, management made the implementation of its proposal to declassify the board subject to approval of a separate proposal to eliminate cumulative voting; the cumulative voting proposal would not be effected without shareholder approval of the proposal to declassify the board. “They both had to be approved,” confirms Scott Martin, a company spokesman.

Energy East is one of the most recent cases of a growing trend among companies to bundle, or horse-trade, the two practices—declassifying boards at the same time as ending cumulative voting.

Harken Energy’s recent proposal to repeal the classified board received 91.5 percent of the votes cast, while one to eliminate cumulative voting received 50.3 percent of the votes cast, according to the Investor Responsibility Research Center (IRRC).

And back in June, United Industrial shareholders agreed to declassify the board of directors and eliminate cumulative voting in the election of directors.

Cumulative voting is a system that gives minority shareholders more power, by allowing them to cast all of their votes for a single candidate, as opposed to regular or statutory voting, in which shareholders must vote for a different candidate for each available seat.

“Cumulative voting gives minority shareholders more potential influence in board elections,” according to a recent report from the IRRC. “Its effect is increased with a declassified board, since the more directors there are up for election, the greater the number of votes a shareholder may cast for one director.”

These days, however, the trend is to move away from cumulative voting. According to the IRRC, just 8.6 percent of the 2,000 most widely held U.S. corporations allowed cumulative voting, less than half the 17.7 percent in 1990.

On the other hand, 56 companies have agreed this year to declassify their boards, according to Institutional Shareholder Services (ISS).

The IRRC also noted that while nearly half of the states once mandated cumulative voting, only six do so now: New corporations in Arizona, Kentucky, Nebraska, North Dakota, South Dakota and West Virginia are required to adopt cumulative voting. However, companies incorporated in these states make up less than 1 percent of all companies in IRRC's core research universe. “Default provisions under most state laws provide for no cumulative voting, unless otherwise provided for in a company’s charter or bylaws,” it adds.

The IRRC notes that Petrohawk Energy (formerly Beta Oil & Gas) and Farmer Brothers this year asked its shareholders to vote on management proposals to eliminate cumulative voting, but also to adopt a classified board. All of the proposals passed.

The IRRC also notes that in December, before the shareholder vote, Petrohawk Energy purchased a controlling interest in Beta Oil & Gas. “Petrohawk indicated in the proxy statement that it intended to vote all of its shares in favor of both proposals, thus ensuring their passage,” the research firm adds.

Meanwhile, Farmer Bros. has been accused of being unfriendly to shareholders. “It appears that the two companies are seeking to erect takeover defenses with their proposals,” says the IRRC in its report.

Indeed, Patrick McGurn, senior VP & special counsel for the ISS, thinks that cumulative voting is a good mechanism for dissidents to get one of their nominees elected in a proxy fight if a group of investors agree to vote all of their shares for one candidate.

In fact, he thinks if the SEC’s proxy access proposal dies, you may see an increasing support for cumulative voting. “It basically guarantees you can get elected your own director,” he insists.

But, these situations are rare anyway. In 2004, there were just 24 proxy contests, down 37 percent from 38 in 2003, according to John C. Wilcox, Vice Chairman, Georgeson Shareholder Communications Inc., the proxy solicitor.

Others are skeptical that cumulative voting would become a good substitute for proxy access. “It's possible, but I'm not sure that anyone would champion it,” says Carol Bowie, research director for the IRRC. “Investors seem to have mixed feelings about whether that makes it a good thing or a bad thing. It's relevant only in contested elections and I think most institutional investors worry that it could be used against their interests as easily as [it could be used] in favor of them.”