Harvard Roundtable on Corporate Governance
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Harvard Roundtable on Corporate Governance March 15–16, 2016 Background Materials TABLE OF CONTENTS A. THE PRECEDING PROXY SEASON ................................................................................ TAB 1 • Corporate Governance Survey—2015 Proxy Season, Fenwick & West LLP, February 2016 • 2015 Annual Corporate Governance Review, Georgeson Inc., February 2016 • Four Takeaways from Proxy Season 2015, EY Center for Board Matters, July 2015 B. DIRECTOR ELECTION ARRANGEMENTS .................................................................. TAB 2 Proxy Access • Expansion of Boardroom Accountability Project, Office of the Comptroller City of New York, January 2016 • Proxy Access Bylaw Developments and Trends, Sullivan & Cromwell LLP, September 2015 • Is Proxy Access Inevitable? (excerpt), Sidley Austin LLP, October 2015 Universal Ballots • Building Meaningful Communication and Engagement with Shareholder (excerpt), Mary Jo White, June 2015 • 2016 Proxy Season: Engagement, Transparency, Proxy Access (excerpt), Weil, Gotshal & Manges LLP Majority Voting • 2015 Corporate Governance Survey (excerpt), Shearman & Sterling, November 2015 • Does Majority Voting Improve Board Accountability? Stephen J. Choi, Jill E. Fisch, Marcel Kahan, and Edward B. Rock, November 2015 C. DIVISION OF POWER BETWEEN SHAREHOLDERS AND BOARDS ..................... TAB 3 Poison Pills • The Long-Term Value of the Poison Pill, Wachtell, Lipton, Rosen & Katz, December 2015 • Shareholder Returns of Hostile Takeover Targets, Wachtell, Lipton, Rosen & Katz, October 2014 • The IRR of No, Institutional Shareholder Services Inc., October 2014 Right to Call Special Meetings & Advance Notice Bylaws • Special Meeting Proposals, Simpson Thacher & Bartlett LLP, August 2015 • New Guidance on Advance Notice By-Laws, Milbank, Tweed, Hadley & McCloy LLP, August 2015 The 14a-8 Debate • Building Meaningful Communication and Engagement with Shareholders (excerpt), Mary Jo White, June 2015 • SEC Rulings on Shareholder Proposals and Ordinary Business Rule, Gibson, Dunn & Crutcher LLP, November 2015 • Letter to SEC on Rule for Shareholder Proposal Resubmissions, Business Roundtable, April 2015 • Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law (excerpt), Leo Strine, March 2014 D. BOARD COMPOSITION ..................................................................................................... TAB 4 Board Refreshment and Tenure • 2015 Corporate Governance Survey (excerpt), Shearman & Sterling, November 2015 • The Trend Towards Board Term Limits is Based on Faulty Logic, Robert Pozen, June 2015 • The “New Insiders”: Rethinking Independent Directors’ Tenure, Yaron Nili, February 2016 • North America’s Board Refreshment Challenge, Legal & General Investment Management, February 2016 Board Diversity • 2015 Corporate Governance Survey (excerpt), Shearman & Sterling, November 2015 • The Pursuit of Gender Parity in the American Boardroom, Mary Jo White, November 2015 • Do Women Stay Out of Trouble? Anup Agrawal, Binay Adhikari, and James Malm, August 2015 Separation of Chairman and CEO • General Motor’s New Chairman of the Board, Automotive News, January 2016 • Independent Chair Proposals, Simpson Thacher & Bartlett LLP, August 2015 E. ENGAGEMENT .................................................................................................................... TAB 5 • New Investor Guide on Engaging on ESG Issues (excerpt), Gibson, Dunn & Crutcher LLP, June 2015 • The Changing Dynamics of Governance and Engagement, Wachtell, Lipton, Rosen & Katz, July 2015 • 2016 Proxy Season: Engagement, Transparency, Proxy Access (excerpt), Weil, Gotshal & Manges LLP, February 2016 F. POLITICAL SPENDING RESOLUTIONS ....................................................................... TAB 6 • Proxy Monitor 2015 Mid-Season Report (excerpt), Manhattan Institute, June 2015 • 2015 Annual Corporate Governance Review (excerpt), Georgeson Inc., February 2016 • 2015 CPA-Zicklin Index of Corporate Political Disclosure, Center for Political Accountability, February 2015 • Corporate Political Disclosure and Mutual Fund Vote (2015 Report), Center for Political Accountability, December 2015 • Responding to Corporate Political Disclosure Initiatives, Covington & Burling LLP, January 2015 G. SOCIAL RESPONSIBILTY RESOLUTIONS ................................................................... TAB 7 • Corporate Investment in ESG Practices, The Conference Board, August 2015 • Active Ownership, Oğuzhan Karakaş, Elroy Dimson, and Xi Li, October 2015 H. THE DEBATE ON BUYBACKS, CAPITAL ALLOCATION AND SHORT-TERMISM ...................................................................................................... TAB 8 • Letter from Larry Fink to S&P 500 CEOs, BlackRock, March 2015 • What the 2016 BlackRock Letter Means for Shareholder Engagement and Disclosure Practices, Cleary Gottlieb Steen & Hamilton LLP, February 2016 • Stock Buybacks Aren’t Hurting Innovation, Greg Satell, March 2015 • The Real Effects of Share Repurchases, Mathias Kronlund, Heitor Almeida, and Vyacheslav Fos, February 2016 • The New Paradigm for Corporate Governance, Wachtell, Lipton, Rosen & Katz, February 2016 Tab 1: The Preceding Proxy Season Posted by David A. Bell, Fenwick & West LLP, on Tuesday, February 2, 2016 Editor’s note: David A. Bell is partner in the corporate and securities group at Fenwick & West LLP. This post is based on portions of a Fenwick publication titled Corporate Governance Practices and Trends: A Comparison of Large Public Companies and Silicon Valley Companies (2015 Proxy Season); the complete survey is available here. Since 2003, Fenwick has collected a unique body of information on the corporate governance practices of publicly traded companies that is useful for Silicon Valley companies and publicly- traded technology and life science companies across the U.S. as well as public companies and their advisors generally. 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) and the high technology and life science companies included in the Silicon Valley 150 Index (SV 150).1 Governance practices and trends (or perceived trends) among the largest companies are generally presented as normative for all public companies. However, it is also somewhat axiomatic that corporate governance practices should be tailored to suit the circumstances of the individual company involved. Among the significant differences between the corporate governance practices of the SV 150 high technology and life science companies and the uniformly large public companies of the S&P 100 are: 1 The 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, have lower revenue. The 2015 constituent companies of the SV 150 range from Apple and Hewlett-Packard (HP) with revenue of approximately $200B and $110B, respectively, Ultratech and Marketo with revenue of approximately $151M and $150M, respectively, in each case for the four quarters ended on or about December 31, 2013. HP went public in 1957, Apple in 1980, Ultratech in 1993 and Marketo in 2013. Apple and HP’s peers clearly include companies in the S&P 100, of which they are also constituent members (nine companies were constituents of both indices for the survey in the 2015 proxy season). Ultratech and Marketo’s peers are smaller technology companies that have market capitalizations well under $5B, many of which went public relatively recently. In terms of number of employees, the SV 150 averages 9,115 employees, ranging from HP with 302,000 employees spread around the world in dozens of countries to companies such as Aemetis with 131 employees in two countries, as of the end of their respective fiscal years 2014. The S&P 100 averages 133,000 employees and includes Wal-Mart with 2.2 million employees in more than two dozen countries at its most recent fiscal year end. 1 Dual-class Stock. There is a clear multi-year trend of increasing use of dual-class stock structures among SV 150 companies, which allow founders or other major long-term holders to retain control of a company through special shares with outsized voting rights. Their use has tripled since 2011 to 9.4%, up from 2.9%. Classified Boards. Companies in the S&P 100 have inherent protection from hostile takeovers in part due to their much larger size, so we’ve seen them declassify in recent years from ~47% a little more than a decade ago down to only 10% in the 2015 proxy season (though that is unchanged from 2014). During that same 10 year period the number of SV 150 companies with classified boards has held firm at ~45%, though with the top 15 companies in Silicon Valley (measured by revenue) now having rates lower than their S&P 100 peers. Insiders. While there has been a longer term downward trend in insiders in both groups, the percentage of insider directors has held essentially steady over the past five years in the SV 150 but has declined slightly in the S&P 100 over the same period. Board Leadership.