A U.S. pension fund is calling on Morgan Stanley to adopt majority voting for its board of directors in the wake of recent turmoil at the firm.

The American Federation of State, County and Municipal Employees Pension Plan submitted a shareholder proposal for the Morgan Stanley 2006 annual meeting urging the board to require that directors receive a majority vote by shareholders in order to serve. “The current board is a creature of [outgoing CEO Phillip] Purcell’s reign,” says Gerald McEntee, AFSCME Pension Plan chairman. “In addition to needing a new CEO who can rebuild shareholder confidence, the company needs a board that no longer carries the baggage of a failed leader.

“We believe that the board has been excessively loyal to [Purcell] and that directors lack financial services experience,” the pension plan says. “We are also concerned about the close relationships among current directors.”

This year more than a dozen shareholder proposals on majority votes have been supported by shareholders, the pension plan notes. Last week, the Canadian Coalition for Good Governance recommended that majority voting should become more widely adopted here too.

“As long-term institutional shareholders, we recommend that Purcell-affiliated directors resign from the board before the next annual meeting so that new directors can stand for election,” says McEntee. “It is our hope that the nominating committee will reach out to shareholders to build a new board capable of making independent strategic decisions about the future of the company.”

AFSCME’s 1.4 million members participate as beneficiaries in public pension plans that in aggregate own approximately 4% of the company.

The pension plan notes that Morgan Stanley currently uses a plurality-voting standard for director elections, which means that the nominee who receives the most votes will be elected. Nearly all corporate director elections, including the past five at Morgan Stanley, are uncontested. In uncontested situations, a plurality voting standard ensures that a nominee will be elected even if holders of a majority of shares voting exercise their right to withhold support from the nominee on the proxy card.

This proposal would require directors to be elected by a majority of shares voting for a nominee or withholding their votes from the nominee. The plurality standard would be retained for contested elections.

“We believe that a majority vote standard for director election would foster a more robust system of board accountability,” it says. “The power of stockholders over director election is supposed to be a safety valve that justifies giving the board substantial discretion to manage the corporation’s business and affairs. Requiring a nominee to garner majority support among stockholders — thus giving stockholders’ withheld votes real meaning — would help restore this safety valve.”