Corporate Governance

2020_Corporate Governance and Executive Compensation

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Shearman & Sterling LLP 14 | Preparing for IPO Success: The Transition in the Founder's Role and Corporate Culture 1 A public company board must be comprised of a majority of independent directors, and there are regulations governing that determination 2 The CEO of the company and the Chair of the board are usually different people in a public company or there is a lead director 3 Increasingly, states, shareholders and investment banks are suggesting or mandating that public company boards achieve gender and racial diversity 4 Public company boards must consider proxy advisory firms and institutional shareholder guidelines The major stock exchanges require that boards of listed companies be comprised of a majority of independent directors. In determining whether a director is independent, the board must make an affirmative determination that the director does not have a "material relationship" with the company, generally meaning that the director does not have a direct relationship with the company as a partner, shareholder or officer of the company or an organization that has a relationship with the company, and has no relationship that would interfere with the exercise of such director's independent judgment, duties and responsibilities. For founders first making the shift from private company to public company, relinquishing control of the board can be difficult. In private companies, it is common for the CEO to serve as Chair. In public companies, these roles are typically separated as a result of pressure from activist shareholders, institutional investors, proxy advisory firms and regulators seeking better corporate governance and management oversight. Some public companies appoint a "lead independent director" or "lead director." A lead director monitors management decisions, acts as an intermediary between the CEO/chairperson and the other board members and collaborates with the CEO/chairperson on setting the board's agenda. function of an independent director in a private company is often to be a neutral voice on the board who can mediate between the interests of the founders and the investors. In contrast, an intricate web of SEC regulations, state corporate law requirements and stock exchange rules governs the composition of a public company board. The four most significant differences between private and public company boards are:

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