Corporate Governance Survey—2015 Proxy Season

David A. Bell is 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 (2015 Proxy Season); the complete survey is available here.

Since 2003, Fenwick has collected a unique body of information on the corporate governance practices of publicly traded companies that is useful for 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]

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:

  • Dual-class Stock. There is a clear multi-year trend of increasing use of dual-class stock structures among SV 150 companies, which allow founders or other major long-term holders to retain control of a company through special shares with outsized voting rights. Their use has tripled since 2011 to 9.4%, up from 2.9%.
  • Classified Boards. Companies in the S&P 100 have inherent protection from hostile takeovers in part due to their much larger size, so we’ve seen them declassify in recent years from ~47% a little more than a decade ago down to only 10% in the 2015 proxy season (though that is unchanged from 2014). During that same 10 year period the number of SV 150 companies with classified boards has held firm at ~45%, though with the top 15 companies in Silicon Valley (measured by revenue) now having rates lower than their S&P 100 peers.
  • Insiders. While there has been a longer term downward trend in insiders in both groups, the percentage of insider directors has held essentially steady over the past five years in the SV 150 but has declined slightly in the S&P 100 over the same period.
  • Board Leadership. Silicon Valley companies are also substantially less likely to have a combined chair/CEO (35% compared to 76% in the S&P 100). Where there is a board chair separate from the CEO, the S&P 100 are about as likely as SV 150 companies to have a non-insider chair (in the 2015 proxy season, 58% compared to 60%, respectively).
  • Gender Diversity. Overall, 2015 continued the long term trend in the SV 150 of gradually increasing numbers of women directors (both in absolute numbers and as a percentage of board members), as well as the trend of declining numbers of boards without women members. The rate of increase for the SV 150 continues to be higher than among S&P 100 companies. Women directors make up an average of 19.1% of board members among the top 15 companies of the SV 150, compared to 21.6% among their peers in the S&P 100. The number of SV 150 companies without women directors fell to 48 (compared to 57 in the 2014 proxy season and 72 companies as recently as the 2012 proxy season).
  • Majority Voting. While there is a clear trend toward adoption of some form of majority voting in both groups, the rate of adoption remains substantially higher among S&P 100 companies (92% compared to 47% of SV 150 companies in the 2015 proxy season, in each case unchanged from the 2014 proxy season), although in the S&P 100 majority voting declined 5% from the 2011 proxy season (compared to an 11% increase for the SV 150).
  • Stock Ownership Guidelines. Stock ownership guidelines for executive officers remain substantially more common among S&P 100 companies (in the 2015 proxy season, 96% compared to 61% in the SV 150), though there was a marked increase among the SV 150 in the 2015 proxy season. There has been a substantial increase for both groups over the course of the survey (from 58% for the S&P 100 and 8% for the SV 150 in 2004), including a 9% increase in the SV 150 over the last year. Similar trends hold for stock ownership guidelines covering board members (although the S&P 100 percentage is about 10% lower for directors compared to officers over the period of the survey, while the SV 150 has been slightly higher for directors compared to officers in recent years).
  • Executive Officers. In both groups there has been a long-term, slow but steady decline in the average number of executive officers per company, as well as a narrowing in the range of the number of executive officers in each group, which continued in the 2015 proxy season. The SV 150 moved from an average of 8.8, maximum of 18 and minimum of 4 in the 1996 proxy season to an average of 6.2, maximum of 14 and minimum of 2 in the 2012 proxy season. The S&P 100 companies moved from an average of 13.2, maximum of 41 and minimum of 5 in 1996 proxy season to an average of 10.7, maximum of 21 and minimum of 3 in the 2014 proxy season.

Complete Coverage

In complete publication, available here, we present statistical information for a subset of the data we have collected over eleven years. These include:

  • makeup of board leadership
  • number of insider directors
  • gender diversity on boards of directors
  • size and number of meetings for boards and their primary committees
  • frequency and number of other standing committees
  • majority voting
  • board classification
  • use of a dual-class voting structure
  • frequency and coverage of executive officer and director stock ownership guidelines
  • frequency and number of shareholder proposals
  • number of executive officers

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. In a number of instances we also present data showing comparison of the top 15, top 50, middle 50 and bottom 50 companies of the SV 150 (in terms of revenue), [2] illustrating the impact of company size or scale on the relevant governance practices.

The complete publication is available here.


[1] The S&P 100 is a cross‑section of companies across industries, but is not a cross‑section of companies across all size ranges (it represents the largest companies in the United States). While the SV 150 is made up of the largest public companies in Silicon Valley by one measure—revenue, it is actually a fairly broad cross‑section of companies by size, but is limited to the technology and life science companies based in Silicon Valley. Compared to the S&P 100, SV 150 companies are generally much smaller and younger, have lower revenue. The 2015 constituent companies of the SV 150 range from Apple and Hewlett-Packard (HP) with revenue of approximately $200B and $110B, respectively, Ultratech and Marketo with revenue of approximately $151M and $150M, respectively, in each case for the four quarters ended on or about December 31, 2013. HP went public in 1957, Apple in 1980, Ultratech in 1993 and Marketo in 2013. Apple and HP’s peers clearly include companies in the S&P 100, of which they are also constituent members (nine companies were constituents of both indices for the survey in the 2015 proxy season). Ultratech and Marketo’s peers are smaller technology companies that have market capitalizations well under $5B, many of which went public relatively recently. In terms of number of employees, the SV 150 averages 9,115 employees, ranging from HP with 302,000 employees spread around the world in dozens of countries to companies such as Aemetis with 131 employees in two countries, as of the end of their respective fiscal years 2014. The S&P 100 averages 133,000 employees and includes Wal-Mart with 2.2 million employees in more than two dozen countries at its most recent fiscal year end.
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[2] The top 15, top 50, middle 50 and bottom 50 companies of the SV 150, include companies with revenue in the following respective ranges: $6.2B or more, $1.4B or more, $315M but less than $1.3B, and $126M but less than $314M. The respective average market capitalizations of these groups are $118B, $44B, $3.1B and $1.6B.
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