Corporate Governance

Shearman & Sterling 28 | IPO Governance SUPERMAJORITY VOTING / CLASSIFIED BOARDS Based on our review of voting ISS voting recommendations at annual meetings of the 2015 IPO class, it appears the governance factors most commonly cited as a basis for a withhold or against recommendation were supermajority voting requirements to amend the charter or by-laws and board classification. DIRECTOR RE-ELECTION Interestingly, in many cases, ISS made withhold or against recommendations for directors not only at the first annual meeting following a 2015 IPO, but also at the second annual meeting. This suggests that ISS is actually taking a harder line on IPO companies than it does on established listed companies, where it will typically only recommend a withhold vote against directors in response to poor performance coupled with problematic governance provisions or an affirmative step by the board to adopt practices ISS considers materially adverse to shareholder rights. AREAS OF FOCUS FOR ISS VOTING RECOMMENDATIONS FOR 2015 IPO COMPANIES We reviewed the ISS voting recommendations for the annual meetings of the 2015 IPO companies we surveyed last year and found that ISS was in fact very active in making withhold or against recommendations for directors of these newly public companies. As mentioned above, the most commonly cited explanation was the failure to remove, or subject to a sunset provision, a classified board and supermajority voting requirements for changing certain by-law or charter provisions. While the adverse recommendations appear to have had an effect on the ultimate voting percentages, we are not aware of any vote that failed to pass on the basis of one of these negative recommendations, and in most cases the affected directors received affirmative votes of a substantial majority of the votes cast. Source: ISS Voting Analytics Of the 2015 IPO companies we surveyed, ISS made withhold or against recommendations for at least one outside director at more than 80% of these companies at their first or second annual meeting, citing the rationale in the ISS Policy described above. 62 COMPARING 2015 AND 2016 IPOS In order to get a sense of how the policy and the voting recommendations are affecting IPO governance practices, we surveyed IPOs that were priced with a size of at least $100 million to analyze governance practices that we would expect to be considered problematic by ISS. 2016 IPOs surveyed 2015 IPOs surveyed 32 62

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