Corporate Governance Practices and 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 modern 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 2023 proxy season. Notable developments include a slight increase in board 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 relevant governance practices.

Observations for 2023 include:

• The percentage of women board members for the SV 150 and S&P 100 continued its increase in 2023 with both groups showing similar levels of representation. The percentage of women serving on boards of SV 150 companies increased slightly to 33% in 2023 from 32.6% in 2022. Similarly, the percentage of women serving on boards of S&P 100 companies was 33.6%, increasing from 32.2% in 2022.
• Adoption of dual-class voting stock structures has emerged as a recent important long-term trend among Silicon Valley technology 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 29.3% in 2023), a trend which we expect to continue. This rate continues to greatly surpass the rate of such structures in the S&P 100 (which has declined to 8% in 2023 after fluctuating between 7% and 12% since 2011).
• 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 45.9% in 2015 to 56% in the 2023 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.
• 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 97% between the 2004 and 2023 proxy seasons. Among the technology and life sciences companies in the SV 150, the rate has risen from zero in the 2004 proxy season to 53.3% in the 2023 proxy season (though that was a slight downtick from 2022).
• SV 150 companies are more likely to separate the board chair and CEO roles than S&P 100 companies, with 46.7% and 61% having combined the roles, respectively. Between 2004 and 2023, the percentage of board chairs who are insiders has declined for both groups, though both groups have also seen small increases over the last couple of years.

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 2023 constituent companies of the SV 150 range from Apple and Alphabet, with revenue of approximately $388B and $283B, respectively, to C3.ai and Amyris, with revenue of approximately $267M and $270M, respectively, in each case for the four quarters ended on or about December 31, 2022. Apple went public in 1980 and Alphabet (as Google) in 2004. Apple’s and Alphabet’s peers clearly include companies in the S&P 100, of which they are also constituent members (13 companies were constituents of both indices for the survey in the 2023 proxy season), where market capitalization averages approximately $696B. C3.ai’s and Amyris’s 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 12,417 employees, ranging from Alphabet, with 190,000 employees spread around the world in dozens of countries, to companies such as Innoviva Inc., with 101 employees in the U.S., as of the end of their respective fiscal years 2022 (Innoviva is ranked 140 in the SV 150).(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: $26.3B or more; $2.8B or more; $857M but less than $2.8B; and $267M but less than $653M. The respective average market capitalizations of these groups are $336.4B, $127.9B, $7.2B and $2.3B.(go back)