Corporate Governance

Shearman & Sterling LLP Introduction | 3 (or companies) in a meaningfully weaker position. For example, if an announced transaction or other initiative sought by an activist is ultimately not consummated, the costs to the company and its shareholders can be very high. This past year, a number of large, high-profile M&A transactions involving activist investors ultimately faced significant opposition from antitrust regulators. Among these was Halliburton Co.'s proposed $28 billion acquisition of Baker Hughes, Inc., which was terminated in May 2016 after being challenged on antitrust grounds. In this instance, the fallout extended beyond the impact of the terminated transaction on the merger parties, as the lead activist — ValueAct Capital Partners LP — was ultimately fined $11 million by the US Department of Justice when its stake-building in both Halliburton and Baker Hughes was found to have violated the Hart-Scott-Rodino Act's "investment-only" exemption. Shareholder Engagement Shareholder engagement has become a much broader topic and a focus of many more shareholders in recent years. The Survey delves into the broad variety of engagement methods employed by public companies, including those required by regulatory bodies, expected by shareholders and additional activities companies have begun to pursue in an effort to connect directly with their shareholders. Eighty-one of the Top 100 Companies made shareholder engagement disclosures in their annual proxy statements, and 60% of those companies also disclosed their reasons for engaging. Proxy Access The adoption of proxy access has increased dramatically over the past year, and as of August 31, 2016 includes 69% of the Top 100 Companies, 40% of the S&P 500 and 34% of Fortune 500 companies. The Survey presents our findings with respect to proxy access proposals received, and proxy access bylaws adopted, by the Top 100 Companies as well as the broader universe of US public companies. We expect shareholders to continue to pressure companies to adopt proxy access in the years to come, but some level of uncertainty will remain with respect to how proxy access is implemented. IPO Governance New to this year's Survey is an analysis of the governance practices adopted at companies formed through an IPO. Newly formed public companies differ from well-established companies, and their governance policies are often developed with this in mind. However, in its Executive Summary of 2016 Global Benchmark Policy Updates, ISS Governance outlines its intention to generally recommend voting against governance practices it believes diminish shareholder rights. Our Survey reviews the governance practices adopted by new public companies and how the

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