Corporate Governance Survey — 2020 Proxy Season Results

David A. Bell is partner at Fenwick & West LLP. This post is based on his Fenwick memorandum.

As outside legal counsel to a wide range of public companies in the technology and life sciences industries, many of which are based in Silicon Valley, Fenwick has collected information on corporate governance in order to counsel our clients on best practices and industry norms. We have collected this data since 2003 and believe this unique body of information is useful for all Silicon Valley companies as well as other public companies in the United States and their advisors.

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), which are often presented as a desired norm, compared to the technology and life sciences companies included in the Fenwick – Bloomberg Law Silicon Valley 150 List (SV 150), where the needs and circumstances of public companies can be quite different.

Comparative data is presented for the S&P 100 companies and the SV 150, as well as trend information over the history of the survey. In a number of instances the report also presents data showing comparison of the top 15 (which are of a scale similar to the S&P 100), top 50, middle 50 and bottom 50 companies of the SV 150 (in terms of revenue), illustrating the impact of scale on the relevant governance practices.

This in-depth survey was developed as a resource for board members, senior executives, in house legal counsel and their advisors, based in Silicon Valley and throughout the United States.

Key Findings Include:

Board Diversity

  • 2020 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. And, when measured as a percentage of the total number of directors, the full SV 150 now approximates the S&P 100, with the largest companies exceeding the S&P 100 peers (the top 15 averaged 30.3% women directors in the 2020 proxy season).
  • Companies with at least one woman director went from 91.3% to 98.0% for the SV 150 compared to the prior proxy season.

Compliance with New California Statutes

  • The majority of companies in the SV 150 met the new standard affecting California-based public companies set out by the new law mandating inclusion of women on boards of directors in 2019.
  • Our data show that the majority of SV 150 companies will need to add women to meet the law’s 2021 standard.
  • Additionally, California companies will also need to meet the requirements of AB 979 (the recently signed law mandating inclusion of underrepresented communities on boards) by the end of 2021, and the stepped-up requirements by the end of 2022.

Dual-Class Voting Stock Structure

  • Adoption of dual-class voting stock structures has emerged as a recent clear trend among Silicon Valley technology companies—among the mid-to-larger SV 150 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 the technology and life sciences companies in the SV 150, though over the past decade there has been a sharp increase in the frequency in the SV 150 (from 2.9% in 2011 to 18.0% in 2020), which has easily surpassed the S&P 100 (slightly decreasing from 9.0% in 2011 to 8.0% in 2020) in recent years. This is largely a function of the recent significant trend in IPO companies with dual‑class structures who then join the SV 150 with such structures in place.

Classified Boards

  • Classified boards are now significantly more common among the technology and life sciences companies in the SV 150 than among the S&P 100 companies. In particular, the last five years have seen a steady increase in their use in the SV 150 (44.3% in 2015 to 55.3% in the 2020 proxy season). Generally, new companies that join the list have classified boards, while some departures did not. The top 15 companies in the SV 150 increased to 13.3% for the 2019 and 2020 proxy seasons, after holding steady at 6.7% between 2015 and 2018, while the S&P 100 has increased to 5.0% in the 2019 and 2020 proxy seasons, after holding steady at 4.0% for the previous couple of years.

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 96% between the 2004 and 2020 proxy seasons. Among the technology and life sciences companies in the SV 150, the rate has risen from zero in the 2005 proxy season to 51.3% % in the 2020 proxy season (a drop from 57.3% in the 2019 proxy season).

Stock Ownership Guidelines

  • The prevalence of stock ownership guidelines has generally increased over time in both groups, but with the SV 150 in 2015 initially surpassing the level of the S&P 100 at the start of the period covered by the survey. For the fourth year in a row, the survey includes additional detail regarding the minimum holding amount and period requirements for executives and directors.

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.
  • By contrast, the percentage of companies including General Counsel, Chief Legal Officer or a Chief Technology Officer or engineering executive as “executive officers” has been on a long-term upswing, though rising more slowly in recent years (with a decline in CTOs among companies in both the SV 150 and S&P 100 in recent years).

Board Chairs

  • For the 2020 SV 150, companies were less likely to have a combined Chair/CEO than S&P 100 companies, with 38.1% and 62.8% having combined the roles, respectively.
  • Between 2004 and 2020, the percentage of boards with chairs who are insiders has declined for both groups.

Fees Paid to Auditors

  • Companies in the SV 150 paid on average a fraction of the audit fees paid by companies in the S&P 100, with SV 150 companies paying on average $4.7 million compared to $23.5 million paid by S&P 100 companies, with an average increase of 9.7% for SV 150 companies and 2.6% for S&P 100 companies from the prior year.
  • The larger the SV 150 company by revenue, the higher its audit fees. The average audit fees of $15.4 million among the top 15 companies of the SV 150 (by revenue) were more similar to the fees paid by their peers in the S&P 100 (though still significantly lower on average)—though the top 15 companies also saw audit fees decrease an average of 7.3% (compared to an average increase of 3.6% among S&P 100 companies).

Meeting Locale

  • The number of virtual meetings for SV 150 companies more than doubled (54.3% in the 2020 proxy season compared to 25.3% in the 2019 proxy season) and more than quadrupled for S&P 100 companies (37% in 2020 versus 8% in the 2019 season), largely – but not entirely – driven by the COVID-19 pandemic. However, the move to virtual meetings does not appear to have a negative impact on stockholder participation when measured by the average percentage of shares represented at the meeting.

Other areas covered:

  • Board size and meeting frequency
  • Board leadership and insider board membership
  • Committee size and meeting frequency
  • Equity, voting power ownership of executives and directors
  • Stockholder proposals

The complete publication, including footnotes, is available here.

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One Comment

  1. Memory Nguwi
    Posted Saturday, January 9, 2021 at 11:22 am | Permalink

    This is very helpful information. Can you also include data from different countries in future surveys.

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