Corporate governance trends gradually change year after year, and it’s important for public companies to stay informed about best practices and so-called “norms” in their industries. Fenwick & West LLP, a law firm that represents many public companies in the life sciences and technology industries, released the results of its latest corporate governance survey earlier this month.
S&P 100 versus SV 150
The firm compared corporate governance practices in the Standard & Poor’s 100 Index and the Silicon Valley 150 Index. The report notes that the needs of Silicon Valley companies can be very different from the needs of other public companies.
The firm compared data from the two indices and examined trends in the history of their survey, which they have conducted annually since 2003.
Use of dual-class stock on the rise
Fenwick found that Silicon Valley companies are increasing their use of dual-class stock. In fact, it more than doubled between 2011 and 2014, climbing to 7.3%. In the years before 2011, the use of dual-class stock was between 2% and 4%.
One company especially known for its use of dual-class stock is Google, which has caught flak for using it because of how it gives the co-founders a lot of control through their special shares with super-sized voting rights.
Board composition in corporate governance
The use of classified boards among S&P 100 companies has fallen off dramatically in the last few years, declining from about 47% about ten years ago to just 10% during this year’s proxy season. However, companies in the SV 150 have continued to use classified boards in the last ten years, as about 47% of them still use classified boards.
In terms of insiders on company boards, SV 150 companies still have insiders as a greater percentage of the entire board, which is usually because their boards are smaller in size. Companies in the S&P 100 tend to have higher actual numbers of insiders on their boards.
The firm states that although in the long term, the number of insiders on companies’ boards has trended downward, companies in both indices have held fairly steady in the last six proxy seasons, according to Fenwick.
Leadership and gender
Fenwick’s survey indicated that when the board chairman position is separate from the company’s CEO position, it is much more likely to be a non-insider at companies in the SV 150 this past year. The firm states that in this setup, 71% of SV 150 companies had a non-insider as chairman, while 52% of S&P 100 companies had a non-insider as chairman. However, the survey also found a significant increase in the number of S&P 100 companies with non-insiders as chairman when the role is separate from the CEO role. In addition, the firm found that SV 150 companies are much less likely to combine the chairman and CEO roles, with 36% of them doing this compared to 69% of S&P 100 companies.
The firm also found that female board members were twice as common at companies in the S&P 100, with 21% of them having women on their board, compared to just 10% in the SV 150. That’s according to average percentage of each board who are women. Both indices show upward trends in women being on their boards, although board positions held by women peaked in 2008.
