Corporate Governance Practices of U.S. Initial Public Offerings

Richard J. Sandler is a partner at Davis Polk & Wardwell LLP and co-head of the firm’s global corporate governance group. This post is based on portions of a Davis Polk publication titled Governance Practices for IPO Companies: A Davis Polk Survey; the complete survey, including a discussion of controlled companies which is omitted below, is available here.

As an advisor to underwriters and issuers in initial public offerings, we surveyed the corporate governance practices of recent U.S. IPOs to identify current market trends. We focused on the top 50 IPOs of U.S. companies from January 1, 2009 through August 31, 2011 in terms of deal size of the IPO. [*] The deal size of the examined IPOs ranged from $132.0 million to $18.14 billion.

Significant Findings

In doing our research, we compared our findings in this survey to those in our 2009 survey. We found that generally, despite the growing pressure for certain corporate governance provisions in seasoned issuers, the corporate governance practices at the IPO companies that we surveyed in 2011 remained in many ways unchanged from those in our 2009 survey. In both surveys, there were approximately similar results for the existence of classified boards, voting standards in uncontested board elections and the percentage of audit committee independence at the time of the IPO. Indeed, we found many fewer companies separating the role of CEO and Chairman of the board in our 2011 survey—34% as compared with 52% in the 2009 survey.

We did note, however, some trends, however small, towards more shareholder–friendly provisions:

  • The 2011 survey showed a 74% average level of director independence versus 66% in the 2009 survey. Also, of the companies that separate the role of CEO and Chairman, 65% of those surveyed in 2011 had an independent chairman versus 19% in the 2009 survey.
  • The 2011 survey also saw an increase in the number of companies that had more than one financial expert on their Audit Committee: 32% of companies in the 2011 survey versus 14% in the 2009 survey.
  • In the 2011 survey, no companies had a poison pill compared to the 2009 survey in which 6% of companies had a poison pill.

Finally, we have added a new section, “Exclusive Forum Provisions.” This addition reflects a growing trend of public companies to incorporate provisions in either their charter or bylaws requiring certain litigation against the company to be brought exclusively in the state court of Delaware, the company’s state of incorporation. The 2011 survey shows that 14% of the companies examined had exclusive forum provisions.

The complete survey is available for download here.

[*] Excludes controlled companies, limited partnerships, REITS, trusts and blank check companies.
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