2022 Corporate Governance Trends in Silicon Valley and at Large Companies Nationwide

Corporate governance practices vary significantly among public companies. This reflects many factors, including:

• Differences in their stage of development, including the relative importance placed on various business objectives (for example, focus on growth and scaling operations may be given more importance for technology and life sciences companies);
• Differences in the investor base for different types of companies;
• Differences in expectations of board members and advisors to companies and their boards, which can vary by a company’s size, age, stage of development, geography, industry and other factors; and
• The reality that corporate governance practices that are appropriate for large, established public companies can be meaningfully different from those for newer, smaller companies.

Since the passage of the Sarbanes-Oxley Act of 2002, which signaled the initial wave of corporate governance reforms among public companies, each year Fenwick has surveyed the corporate governance practices of the companies included in the Standard & Poor’s 100 Index (S&P 100) and the technology and life sciences companies included in the Fenwick – Bloomberg Law Silicon Valley 150 List (SV 150). [1]

Significant Findings

Most of the governance practices and trends from previous years continued in the 2022 proxy season. Notable developments include an increase in gender diversity in both the SV 150 and S&P 100. We also saw changes in other key areas, including dual-class voting structure, board classification and majority voting.

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.

Observations for 2022 include:

Board Diversity

• The percentage of women board members for the SV 150 exceeded the percentage of women board members for the S&P 100, eliminating the historic gap between smaller technology companies and their larger public company counterparts in the S&P 100.
• The percentage of women serving on boards of SV 150 companies significantly increased to 32.5% in 2022 from 25.7% in 2021.
• Similarly, the percentage of women serving on boards of S&P 100 companies was 32.3%, increasing from 28.7% in 2021.

Dual-Class Voting Stock Structure

• Adoption of dual-class voting stock structures has emerged as a recent important long-term trend among Silicon Valley technology companies—particularly among the mid-to-larger SV 150 companies—though it is still a minority of companies.
• Throughout the past decade, the SV 150 saw a sharp increase in the frequency of dual-class voting structures (from 2.9% in 2011 to 25.5% in 2022).
• This rate continues to greatly surpass the rate of the S&P 100 (which decreased from 9.0% in 2011 to 5.0% in 2022).

Classified Boards

• Classified boards remain significantly more common among technology and life sciences companies in the SV 150 than among S&P 100 companies.
• Their use has steadily increased in the SV 150 (from 44.3% in 2015 to 53.7% in the 2022 proxy season).
• Companies in the middle 50 and bottom 50 of the SV 150 were more likely to have classified boards than the larger SV 150 companies.

Majority Voting

• More companies are implementing some form of majority voting among both the S&P 100 and SV 150. The increase has been particularly dramatic among S&P 100 companies, rising from 10% to 96% between the 2004 and 2021 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 56.3% in the 2021 proxy season.

Board Chairs

• SV 150 companies are less likely to have a combined chair/CEO than S&P 100 companies, with 44.2% and 59.6% having combined the roles, respectively.
• Between 2004 and 2022, the percentage of board chairs who are insiders has declined for both groups, though both groups have seen small increases over the last couple years.

Fees Paid to Auditors

• We compared the audit fees paid in 2021 reported in the 2022 proxy season by SV 150 and S&P 100 companies. The data show that 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 $4.9 million compared to $23.3 million paid by S&P 100 companies.
• Average audit fees declined slightly in the SV 150 in 2021 after several years of gradual increases year over year. In the SV 150, companies disclosed in the 2022 proxy season that they paid on average $4.9 million in 2021, compared to $5.2 million the prior year, down by 5.7%. S&P 100 companies paid on average $23.3 million in both 2021 and 2020.
• In the S&P 100, audit fees ranged from a minimum of $3.2 million to a maximum of $73.8 million. SV 150 companies paid audit fees ranging from $502,000 to $26.9 million.

The complete publication covering these and other topics in detail is available here.

Also view Fenwick’s recent report, 2022 Proxy Season Results in Silicon Valley and at Large Companies Nationwide, covering five-year trend data throughout the 2018-2022 proxy seasons for annual meeting participation, director elections, say-on-pay and other proposals among the technology and life sciences companies included in the SV 150 and the S&P 100.

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, and have lower revenue. The 2022 constituent companies of the SV 150 range from Apple and Alphabet with revenue of approximately $378B and $258B, respectively, to Poshmark and Rambus, with revenue of approximately $327M and $328M, respectively, in each case for the four quarters ended on or about December 31, 2021. Apple went public in 1980, Alphabet (as Google) in 2004. Apple and Alphabet’s peers clearly include companies in the S&P 100, of which they are also constituent members (12 companies were constituents of both indices for the survey in the 2022 proxy season), where market capitalization averages approximately $696B. Poshmark’s and Rambus’ peers are smaller technology and life sciences companies that went public relatively recently and have market capitalizations well under $1B. In terms of number of employees, SV 150 companies average approximately 11,651 employees, ranging from Alphabet with 156,500 employees spread around the world in dozens of countries, to companies such as Corcept Therapeutics, with 238 employees in the U.S., as of the end of their respective fiscal years 2021 (Innoviva, ranked 133 in the SV 150, has the fewest full-time employees—five).(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: $18.9B or more; $2.9B or more; $776M but less than $2.9B; and $327M but less than $770M. The respective average market capitalizations of these groups are $553.3B, $211.2B, $15.8B and $6.3B.(go back)