Corporate Governance

Shearman & Sterling LLP A | Introduction Introduction We are pleased to share Shearman & Sterling's 2015 Corporate Governance & Executive Compensation Survey of the 100 largest US public companies. This year's Survey, the 13th in our series, examines some of the most important governance and executive compensation practices facing boards today and identifies best practices and emerging trends. Our analysis will provide you with insights into how companies approach governance issues and will allow you to benchmark your company's corporate governance practices against the best practices we have identified. Shareholder Activism Shareholder activism is here to stay and well-funded activist hedge funds are setting their sights on bigger targets to generate the outsized returns they and their investors expect. This year, eight of the Top 100 Companies were subject to an activist campaign, up from six of the Top 100 companies in 2014. No company is too large to become the target of an activist, and all public companies should evaluate their businesses in light of the themes activists most frequently pursue, including acquisitions, dispositions and spin-offs, returning cash to shareholders through dividends or share buybacks and modifying corporate governance practices. Additionally, as this year's DuPont-Trian proxy contest illustrates, a critical element of any company's defense against an activist is effective engagement with its shareholders. Proxy Access It is clear at this point that proxy access will remain at the forefront of corporate governance debates in 2016 and beyond. In the 2015 proxy season, we saw a dramatic increase in the number of US public companies that received shareholder proxy access proposals — from just 20 in 2014 to 112 in 2015. We also identified 10 companies that adopted a proxy access by-law or included a management proxy access proposal in their proxy statements. In light of the high degree of focus on proxy access in 2015, in this year's Survey we analyzed the various approaches taken by this universe of 122 companies as well as the results thereof. Our findings with respect to shareholder proxy access proposals received by, and proxy access by-laws adopted for, the Top 100 Companies are presented in other sections of our Survey. Board Leadership The separation of the offices of CEO and chair of the board is a governance practice that continues to receive significant attention as shareholders increasingly demand that the chair of the board be independent of management. Yet, at 63 of the Top 100 Companies, the CEO also served as the chair of the board. This year, the most frequently submitted governance- related shareholder proposal at the Top 100 Companies called for an independent chair of the board. Despite the lack of majority support for these proposals, we expect shareholders to continue pressuring boards to separate the two offices. Women in Leadership Board diversity matters. Our Survey of board gender diversity, only one aspect of board diversity, shows that achieving gender "equality" on boards is still a long way off. Women held 22% of the total number of board seats at the Top 100 Companies and only two companies have a board where women held 40% or more of the board seats. While increasing the number of women serving on boards continues to be in the spotlight, more needs to be done if there is going to be an increase in the rate at which women are appointed to boards and top executive leadership roles. Women serve as the chief executive officer at only eleven of the Top 100 Companies and as both the CEO and chair of the board at seven of those companies. There is no easy answer to achieving better representation of women on boards and in C-Suites, and nominating and governance committees need to stay focused on and be proactive in accelerating gender balance and increasing all aspects of diversity in leadership roles. The 2015 Survey was produced under the leadership of the following Shearman & Sterling partners: Danielle Carbone, David Connolly, Stephen Giove, Doreen Lilienfeld and Rory O'Halloran

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