New Committees, More Majority Voting

A new survey on corporate governance practices at large U.S. public companies finds a rise in majority voting, a decline of both classified boards and poison pills, and increased efforts to improve transparency on executive compensation.

According to Shearman & Sterling’s sixth annual Corporate Governance Survey these findings indicate that the companies surveyed are more responsive to good corporate governance practices and to better serving the interests of shareholders.

Survey findings were based primarily on an analysis of the proxy statements of the 100 largest U.S. public companies.

 “Corporate governance changes tend to be incremental,” said John Madden, the Shearman & Sterling partner directing the survey, “unless key regulatory initiatives—like Sarbanes-Oxley—accelerate the pace.

Leading U.S. companies continue to make corporate governance a priority and reflects the continuing increase in shareholder activism. “But what’s particularly interesting is that our Q&A interviews with global business leaders, conducted for the first time, suggest that corporate governance is not just a U.S. issue but, increasingly, a global business priority. There are significant implications for companies no matter where they operate,” Madden added.

Key findings in this year’s Corporate Governance Survey include:

• Majority voting has solidified its position as the primary voting standard used in director elections. In 2008, the number of companies surveyed that had adopted a majority voting standard rose to 71. In comparison, only 11 companies had adopted such a standard in 2006. In addition, the number of companies surveyed that required directors to submit their resignations if they received less than a majority of the votes cast rose to 76.
• Classified boards and “poison pills” are becoming increasingly rare. The number of companies operating with a classified board has decreased by 50 percent since 2004, falling to just 27 in 2008. The survey revealed an even more dramatic decrease in the number of companies with a poison pill. In 2008, only 12 companies surveyed still retained a poison pill. This means that the number of companies with a poison pill has decreased by almost two-thirds since 2004.
• Two new categories--the extent to which companies have taken advantage of the e-proxy rules and the number and types of committees of the board--were studied.  The survey found that 35 companies permitted to provide proxy materials to shareholders electronically for the first time in 2007 utilized the “notice-and-access” model for the delivery of their proxies, with 18 of these companies utilizing a hybrid version incorporating both the “notice-and-access” and traditional methods of delivery.
• Companies surveyed had formed an array of additional committees. Other than the audit, compensation, and governance committees, the most common committees were the executive, finance, and public policy committees.