Annual Corporate Governance & Executive Compensation Survey

2018 Corporate Governance Survey

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Shearman & Sterling LLP IPO Corporate Governance | 55 CONCLUSION While the 2017 survey showed a decrease in the adoption of governance provisions that run afoul of the ISS policy on newly public companies (in particular, classified boards and supermajority voting provisions), it is too early to conclude that the ISS policy prompted the shift in 2017 or that it will be continued in 2018. Although controlled companies continued to enjoy immunity from the ISS policy and voting recommendations, some companies took action to remove aggressive governance provisions as soon as they were no longer controlled, possibly due in part to the ISS policy and voting recommendations. We are curious to see if additional companies amend their governance structure as they mature as public companies. Boards of newly public companies should continue to monitor the impact of ISS voting recommendations as they relate to their own company's governance practices. Additionally, boards should give consideration as to whether to establish sunsets for certain governance practices at the time of the IPO and the appropriate time to take another look at corporate governance practices (for example, upon exiting controlled company status). In addition to analyzing the ISS voting recommendations, we reviewed proxy statements and other securities filings for the 2015 and 2016 IPO companies to determine if any charter or by-law amendments had been approved or proposed since the company went public. Two 2015 IPO companies and five 2016 IPO companies declassified their board and/or removed supermajority voting provisions since their IPO. In all cases, ISS had recommended a withhold or against vote for director nominees at the previous year's annual meeting due to the companies' classified board and/or supermajority voting provisions. Of the seven companies CHARTER AND BY-LAW AMENDMENTS that removed the adverse governance provisions, six were controlled companies at the time of their IPO. Several of the companies specifically noted the exit of the sponsor or controlling stockholder as the rationale for the charter amendment, while others cited corporate governance best practices for the change. It is possible that for these companies, the combination of the negative ISS voting recommendation and exit for controlled company status encouraged the quick removal of the adverse provisions, perhaps as a move to establish positive shareholder relations as a "new" (non-majority-controlled) public company.

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