Corporate Governance: A Comparison of Large Public Companies and Silicon Valley Companies

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 (2016 Proxy Season). Related research from the Program on Corporate Governance includes Delaware Law as Lingua Franca: Evidence from VC-Backed Startups, by Jesse Fried, Brian Broughman, and Darian Ibrahim (discussed on the Forum 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 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 technology and life science companies and the uniformly large public companies of the S&P 100 are:

  • Dual‑Class Voting Stock Structure. Adoption of dual‑class voting stock structures has emerged as a recent clear trend among Silicon Valley technology companies, though it is still a small percentage of companies. Historically, dual‑class voting stock structures have been significantly more common among S&P 100 companies than among SV 150 companies, though the frequency in the SV 150 (9.4% in 2015 to 11.3% in 2016) has surpassed the S&P 100 (9.0% in both 2015 and 2016) in recent years.
  • Classified Boards. Classified boards are now significantly more common among SV 150 companies than among S&P 100 companies. Compared to the prior year, classified boards remained fairly consistent for the SV 150 at about half of companies, but decreased for the S&P 100 from 10% in 2015 to 4% in 2016 (in each case consistent with the long‑term trend for the group).
  • Majority Voting. The rate of implementation of some form of majority voting has risen substantially over the period of this survey. The increase has been particularly dramatic among S&P 100 companies, rising from 10% to 95% between the 2004 and 2016 proxy seasons. Among SV 150 companies, the rate has risen from none in the 2005 proxy season to 55% in the 2016 proxy season.
  • Stock Ownership Guidelines. The prevalence of stock ownership guidelines has generally increased over time in both groups but the SV 150 only recently surpassed the level of the S&P 100. This year’s edition of the survey includes additional detail regarding the terms of those guidelines.
  • Executives and Directors—Equity, Voting Power Ownership. There is a clear multi‑year trend that the distribution of simple equity ownership and voting power ownership skews higher among technology and life sciences companies in the SV 150 than among S&P 100 companies.
  • Board Diversity. 2016 continued the long‑term trend in the SV 150 of increasing numbers of women directors and declining numbers of boards without women members. The rate of increase in women directors for SV 150 overall continues to be higher than among S&P 100 companies. The peers of the S&P 100 that are in the SV 150 (the top 15) now have about the same average percentage of women directors as their S&P 100 peers. Companies with at least one woman director went from 67.8% to 74% for the SV 150 with distribution ticking up.
  • Board Size, Meeting Frequency, Leadership. Combined chair/CEOs existed at about one third of companies in the SV 150, while combined chair/CEOs exist at about 69% of S&P 100. SV 150 companies held board meetings more often in 2015 than 2014, while S&P 100 companies decreased meeting frequency in 2015 (companies report meetings for the prior year). SV 150 companies, though, continued to skew noticeably toward fewer meetings compared to the S&P 100. Insider directors are more common among members of the boards of SV 150 companies than among board members at S&P 100 companies, though continuing a long‑term downward trend. The number of directors also tends to be substantially lower among SV 150 companies than among S&P 100 companies.
  • Stockholder Proposals. Stockholder activism—measured in the form of proposals included in the proxy statements of companies—is substantially lower among the SV 150 than among S&P 100 companies. There is a current general downward trend of stockholder activism in both groups, although the SV 150 has had an upward trend in number of proposals in recent years. This year there were no contested director elections actually held in either group.
  • Executive Officers. The number of executive officers tends to be substantially lower among SV 150 companies than among the S&P 100, and there continues to be a general decline in the average number of executive officers per company in both groups.

Complete Coverage

In complete publication, available here, we present statistical information for a subset of the data we have collected over the years, updating for the 2016 proxy season. 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.

Endnotes

1The 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 2016 constituent companies of the SV 150 range from Apple and Alphabet with revenue of approximately $235B and $75B, respectively, to Fibrogen and TubeMogul with revenue of approximately $181M each, respectively, in each case for the four quarters ended on or about December 31, 2015. Apple went public in 1980, Alphabet (as Google) in 2004, and Fibrogen and TubeMogul, each in 2014. Apple and Alphabet’s peers clearly include companies in the S&P 100, of which they are also constituent members (eight companies were constituents of both indices for the survey in the 2016 proxy season), where market capitalization averages approximately $142B. Ultratech and Marketo’s peers are smaller technology companies that went public more recently and have market capitalizations well under $1B. In terms of number of employees, the SV 150 averages 9,535 employees (with a median of 1,803 employees), ranging from Hewlett Packard Enterprise with 240,000 employees spread around the world in dozens of countries to companies such as Five Prime Therapeutics with 154 employees all in the United States, as of the end of their respective fiscal years 2015. The S&P 100 averages approximately 150,000 employees and includes Wal‑Mart with 2.3 million employees in more than two dozen countries at its most recent fiscal year end. (go back)

2The top 15, top 50, middle 50 and bottom 50 companies of the SV 150, include companies with revenue in the following respective ranges: $6.7B or more, $1.6B or more, $400M but less than $1.5B, and $181M but less than $400M. The respective average market capitalizations of these groups are $152.3B, $54.4B, $3.3B and $979M. (go back)

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