Silicon Valley Exceptionalism

Hopefully, it can mostly be attributable to early stage growth but Fenwick & West’s Corporate Governance Practices and Trends: A Comparison of Large Public Companies and Silicon Valley Companies found significant differences between the corporate governance practices of Silicon Valley 150 high technology and life science companies and the uniformly large public companies of the S&P 100, including:

  • While there has been a general downward trend in both groups, the SV 150 companies are substantially less likely to have a combined board chair/CEO than S&P 100 companies (in 2011, 30% compared to 70%).
  • The S&P 100 companies tend to have larger boards than SV 150 companies (median of 12 compared to median of 8 in 2011), and trend toward larger primary committees (audit, compensation and nominating). They also are substantially more likely to have other standing committees (87% of S&P 100 companies do, compared to 26% of SV 150 companies in 2011).
  • SV 150 companies have more insiders as a percentage of the full board, while S&P 100 companies have more insider directors measured in absolute numbers.
  • While there is a clear trend toward adoption of some form of majority voting in both groups, the rate of adoption is substantially higher among S&P 100 companies (97% compared to 26% of SV 150 companies in 2011).
  • While classified boards used to be similarly common among both groups (about 44% for S&P 100 and 46% for SV 150 in 2004), there has been a marked decline in the rate of their use among S&P 100 companies but not among SV 150 companies (7% for S&P 100 compared to 46% for SV 150 in 2011).
  • Stockholder activism, measured in the form of proposals included in the proxy statements of companies, is substantially lower among the high technology and life science companies in the SV 150 than among S&P 100 companies (whether measured in terms of frequency inclusion of any such proposals or in terms of number of proposals). This is true even among the largest companies in the SV 150.

SV 150 companies also tend to have significantly greater ownership (whether equity ownership or voting power) by the board and management than S&P 100 companies. Surprising to me, dual-class voting stock structures have been significantly more common among S&P 100 companies than SV 150 companies, though in both groups dual-class voting is a small minority.

Is it time for CalPERS and CalSTRS to pay more attention to companies in their own backyard? One place to catch up on the action is at the SVNACD. Their next event is Board Evaluations: Rigorous Process or Kabuki Theater? on March 15 in Palo Alto. Wouldn’t it be interesting if representatives of those funds started showing up at SVNACD meetings?

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