Corporate Governance at Silicon Valley Companies

The following post comes to us from David A. Bell, partner in the corporate and securities group at Fenwick & West LLP. This post is based on portions of a Fenwick publication titled Corporate Governance Practices and Trends: A Comparison of Large Public Companies and Silicon Valley Companies; the complete survey is available here.

As counsel to a wide range of public companies in the high technology and life science industries, primarily based in Silicon Valley and Seattle, Fenwick has collected information on the corporate governance practices of publicly traded companies in order to counsel our clients on best practices and industry norms in corporate governance. We have collected this data since 2003 and believe this unique body of information is useful for all Silicon Valley companies and publicly-traded technology and life science companies across the U.S. as well as public companies and their advisors generally.

Fenwick’s annual survey covers a variety of corporate governance practices and data for the companies included in the Standard & Poor’s 100 Index (S&P 100) and the high technology and life science companies included in the Silicon Valley 150 Index (SV 150). [1] In this report, we present statistical information for a subset of the data we have collected over the years. These include:

  • makeup of board leadership
  • number of insider directors
  • size and number of meetings for boards and their primary committees
  • frequency of maintaining other standing committees
  • majority voting
  • board classification
  • use of a dual-class voting structure
  • frequency and number of shareholder proposals

In each case, comparative data is presented for the S&P 100 companies and for the high technology and life science companies included in the SV 150 as well as trend information over the history of the survey.

Significant Findings

Governance practices and trends (or perceived trends) among the largest companies are generally presented as normative for all public companies. However, it is also somewhat axiomatic that corporate governance practices should be tailored to suit the circumstances of the individual company involved. Among the significant differences between the corporate governance practices of the SV 150 high technology and life science companies and the uniformly large public companies of the S&P 100 are:

  • While there has been a general downward trend in both groups, the SV 150 companies are substantially less likely to have a combined board chair/CEO than S&P 100 companies (in 2011, 30% compared to 70%).
  • The S&P 100 companies tend to have larger boards than SV 150 companies (median of 12 compared to median of 8 in 2011), and trend toward larger primary committees (audit, compensation and nominating). They also are substantially more likely to have other standing committees (87% of S&P 100 companies do, compared to 26% of SV 150 companies in 2011).
  • SV 150 companies have more insiders as a percentage of the full board, while S&P 100 companies have more insider directors measured in absolute numbers.
  • While there is a clear trend toward adoption of some form of majority voting in both groups, the rate of adoption is substantially higher among S&P 100 companies (97% compared to 26% of SV 150 companies in 2011).
  • While classified boards used to be similarly common among both groups (about 44% for S&P 100 and 46% for SV 150 in 2004), there has been a marked decline in the rate of their use among S&P 100 companies but not among SV 150 companies (7% for S&P 100 compared to 46% for SV 150 in 2011).
  • Stockholder activism, measured in the form of proposals included in the proxy statements of companies, is substantially lower among the high technology and life science companies in the SV 150 than among S&P 100 companies (whether measured in terms of frequency inclusion of any such proposals or in terms of number of proposals). This is true even among the largest companies in the SV 150. [2]

The complete Fenwick & West 2011 Corporate Governance Practices Survey is available here.


[1] The 2011 constituent companies of the SV 150 range from Hewlett-Packard (HP) with revenue of approximately $127B to Meru Networks (Meru) with revenue of approximately $85M, in each case for the four quarters ended on or about December 31, 2010. HP went public in 1957, Meru in 2010. HP’s peers clearly include companies in the S&P 100, of which it is also a constituent member (seven companies were constituents of both indices for the survey in the 2011 proxy season), where revenue averages approximately $40B. Average stock ownership by directors and executives officers in the SV 150 is roughly twice the level in the S&P 100.
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[2] Among the high technology and life science companies in the top 15 of the SV 150 (all of which are of a scale similar to S&P 100 companies), only 43% had at least one stockholder proposal, the average number of proposals was 2.2 and only one had more than three proposals during the 2011 proxy season (compared to 69% of S&P 100 companies with an average of 2.7 proposals and 21% having more than 3 proposals).
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