When companies are seeking to establish appropriate corporate governance policies, they often look to model themselves after those titans of industry in the Standard & Poor’s 100.
But according to a new study out Thursday from Fenwick & West, authored by partner David Bell, there’s a lot of variety when it comes to “best practices”­—especially when you look at successful Valley companies. That’s a primary reason Bell began putting together the survey, “Corporate Governance Practices and Trends: A Comparison of Large Public Companies and Silicon Valley Companies,” which examines trends from 2004 through the 2013 proxy season.
“There are actually a lot of misconceptions around how various corporate governance practices are approached and around perceived trends or norms,” Bell says. Companies might differ for a whole host of reasons—from size to industry and beyond—and it’s important to understand that what works for the S&P giants might not be appropriate for nimble, growing high tech companies.
The study homes in on several distinctions between the two groups, highlighting discrepancies in areas like insider equity ownership and board composition.
This year, the 150 biggest public high tech and life science companies in Silicon Valley continued to see increases in insider equity ownership, with executives and officers holding an average of about 13 percent of a company’s stock. The S&P 100 has continued to hover around 3 percent. “The trend is surprising in some ways but may generally speak to the strength or optimism of the technology sector,” Bell noted, adding that Valley insiders may be confident that their companies have yet to unlock their full value potential, and want to hang on to their stock to have it realized.
The Valley 150 also tends to have more insiders as a proportion of the full board, though companies in the S&P 100 have more insider directors measured in absolute numbers, and bigger boards overall. In the 2013 proxy season, S&P 100 companies had an average of 11.2 executive officers, while SV 150 companies averaged 6.5.
Perhaps unsurprisingly, given some of the attention paid to the Valley’s gender diversity in recent months, SV 150 boards continue to lag their larger counterparts when it comes to female board representation. Ninety-eight percent of S&P 100 companies have at least one female board member; only 57 percent of SV 150 companies can say the same. But the bigger businesses are doing better on this measure: Among the 15 largest SV 150 companies, 93 percent have one or more female board members.
The S&P 100 tends to be more focused on aligning executive pay with stock performance, and therefore they more commonly feature stock ownership guidelines, which spell out how much stock officers and directors should hold. In the 2013 proxy season, 95 percent of companies in the S&P 100 had such rubrics, compared to 53 percent in the SV 150. Still, that marks huge gains for both groups over the life of the survey: In 2004, just 58 percent of the S&P 100 and 8 percent of the SV 150 had ownership guidelines.
A gap persists but is declining in the number of S&P 100 and SV 150 companies using shareholder-friendly majority voting. Bell found that the size of the company is a significant factor. Nearly 87 percent of the 15 largest SV 150 companies, which are more similar in size to the S&P 100, have adopted the practice compared to 44 percent overall for the SV 150. Ninety-two percent of the S&P 100 use the practice.
Stockholder activism continues to be substantially lower in the SV 150 than among S&P 100 companies.
The survey’s findings also poked a hole in the notion that the dual-class stock structure has swept the Valley’s tech companies. In fact, only a small number of companies employ such a structure, and historically, it’s been more common among the S&P 100 than in the SV 150. While adoption by the likes of Google, Facebook and Zynga might make it seem that everyone is doing it, what the big players practice—both here and in the study’s other findings—aren’t necessarily one-size-fits-all solutions.
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