Corporate Governance

Shearman & Sterling LLP Introduction | 2 Some of the more successful efforts resulting from this energized governance environment are plain to see based on our survey results over the years. On the shareholder democracy front, the percentage of the Top 100 Companies that had adopted a majority (rather than plurality) voting standard in uncontested elections was approximately 10% when surveyed in 2006 and is now nearly universal. Further, despite the unsuccessful efforts by the U.S. Securities and Exchange Commission (SEC) to mandate proxy access, institutional investors achieved dramatic success by supporting proxy access proposals and through private ordering, brought the percentage of the Top 100 Companies with a proxy access bylaw from a de minimis number in 2013 to nearly 90% in 2019, with broad general acceptance by public companies. On the board leadership front, while the percentage of Top 100 Companies that have a separate chair and CEO remains less than 50%, the percentage that have a lead independent director grew from approximately 20% in 2003 to almost all of the Top 100 Companies that have their CEO also serve as chair today. There has also been a significant retreat in the prevalence of anti-takeover devices that could be used to entrench management. The percentage of the Top 100 Companies with a classified board has fallen from around 50% in 2004 to less than 10% today, and while many companies still have a shareholder rights plan or poison pill "on the shelf", the number with active plans has fallen from around a third in 2004 to a negligible number today. Despite these developments, there are a number of areas where the efforts by investors to drive change have been much less successful; although all of the Top 100 Companies have at least one women on the board the percentage of women on a board or serving as CEOs of the Top 100 Companies remains stubbornly low. Interestingly, our survey in 2003 did not even consider the number of women on the boards of the companies we surveyed. The survey in 2003 also did not consider the diversity of boards. The data companies and investors were interested in 2003 focused on independence, the size of boards, retirement ages, term limits and other tactical elements of board governance. In the 20 years since, we have seen the scrutiny change to focus on the composition of boards — whether the directors have the necessary skills and experience to meet the challenges of the company and whether the board is diverse. We have also tracked over the 20 years how more and more companies present this information in detailed matrices that categorize specialized skills, experience and diversity characteristics of each director. We have also noticed that almost all of the Top 100 Companies are including photos of their directors. That, too, was not the case in 2003. While shareholders and boards continue to wrestle with traditional governance concepts, new challenges have emerged for companies that have shifted the focus to ESG issues. Climate change and sustainability have become key issues for investors and boards as long-term investors push for more information about what the future holds for their investments as the world warms and how companies are responding to the risks, challenges and opportunities in their industries. Technology, which has long been a boon in terms of efficiency and productivity has also become Companies vary considerably in how they present information regarding board diversity in their proxy statements. In 2022, the number of Top 100 Companies that presented information about the diversity of their boards on a director- specific basis increased from 26 companies in 2021 to 43 companies in 2022. No Board Diversity Information Presented 80 56 76 18 26 25 20 10 7 43 1 2020 2021 2022 Board Diversity Information Women in the Boardroom The number of Top 100 Companies with a board comprised of 30% or more women rose from 58 companies to 71 companies over the past year. 28 of the Top 100 Companies have a board with 40% or more women members, up from 23 in 2021. In 2013, the first survey year where we tracked this information, 14 of the 100 companies we surveyed had boards comprised of 30% or more women and only two companies had boards with 40% or more women members. In 2013, eight companies we surveyed had a woman serving as CEO and, in 2022, that number has only risen to 11.

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