Corporate Governance Trends
A Comparison of Large Public Companies and Silicon Valley Companies
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. Download the complete report.
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:
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 the frequency in the SV 150 (10.9% in 2017, 13% in 2018 and 12.7% in 2019) has surpassed the S&P 100 (9.0% in 2016 to 2019) 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 are now significantly more common among the technology and life sciences companies in the SV 150 than among the S&P 100 companies. Compared to the prior year, classified boards increased from 50.7% in 2018 to 52.7% in the 2019 proxy season for the full SV 150 (new companies joining the list generally have classified boards, while some departures did not). The top 15 companies in the SV 150 increased to 13.3% in the 2019 proxy season, after holding steady at 6.7% between 2015 and 2018, while the S&P 100 has increased to 5.0% in the 2019 proxy season from 3.0% in the prior year, after holding steady at 4.0% between 2016 and 2017 (again resulting from changes to group composition).
- 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 2019 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 57.3% in the 2019 proxy season (a small drop from 57.9% in the 2018 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. For the third year in a row, the survey includes additional detail regarding the minimum holding amount and period requirements for executives and directors.
- 2019 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. When measured as a percentage of the total number of directors, S&P 100 companies now slightly exceed their peers in the top 15 of the SV 150 (the top 15 averaged 27.1% women directors in the 2019 proxy season, compared to 27.3% in the S&P 100), slightly reversing the recent trend.
- Companies with at least one woman director went from 82% to 91.3% over the past year for the SV 150. Over a two-year period the percentage of companies with at least one woman director grew by 13.1 percentage points.
Compliance with New California Statute
- Most companies in the SV 150 would meet the new standard affecting California-based public companies set out by a new law mandating inclusion of women on boards of directors in 2019 (companies generally had a number of months remaining to comply when the data was gathered).
- Our data show that the majority of SV 150 companies will need to add women to meet the law’s 2021 standard.
- 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” have 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).
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 $4.3 million compared to $22.9 million paid by S&P 100 companies, with an average increase of 3.7% from the prior year.
- The larger the SV 150 company by revenue, the higher its audit fees. The average audit fees of $13.7 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).
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