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More companies separate chair and chief, declassify board, survey shows

Companies are making “incremental but meaningful changes in several key governance areas,” according to a Davis Polk & Wardwell attorney.

Ning Chiu, a counsel in Davis Polk’s capital markets group, wrote on the firm’s website Friday that Institutional Shareholder Services’ recent “Board Practice: 2014 Edition” survey shows that 51 percent of the companies included in the Standard & Poor’s 1500 Index have separated the roles of chief executive and chairman—the first time a majority of companies have done so.

Chiu, who focuses her practice on corporate governance and SEC regulation matters, also wrote that the survey shows how governance practices among large and small companies differ. For example, she notes, 30 percent of mid-size companies, as judged by market capitalization, have independent chairs, while 22 percent of large companies do. (ISS apparently double-checked companies on their definitions. Chiu points out that 17 percent of the chairs deemed independent by companies were instead labeled “affiliated” by the proxy advisory firm.)

Meanwhile, according to Chiu, two significant corporate governance trends are gaining traction across all companies. “When it comes to director, election matters,” she wrote. “It is no surprise that bigger companies are much more likely to have adopted majority voting (82 percent) and annual elections (70 percent).”

And though mid-caps lag behind on adopting similar measures to some degree—only 46 percent require directors to be elected by a majority, and 57 percent have declassified their boards—“there is a steady rise toward changing to these practices in the last five years, and that trend is likely to continue,” Chiu writes.

A summary of the survey’s content on the ISS website notes that shareholders are the ones pushing these changes: “Investors and issuers are engaging more than ever and private ordering has surpassed regulation as the primary impetus for change.”