Proxy access adoption, board leadership, and gender diversity remained top of mind for corporate boards, driven by continued pressure from shareholders, according to Shearman & Sterling’s 14th annual “Corporate Governance & Executive Compensation Survey.”

 These findings come from a review of the corporate governance and compensation practices of 100 of the largest US public companies listed on the NYSE or NASDAQ. The data was culled from annual proxy statements, compensation committee charters, and corporate governance guidelines posted on the companies’ websites available as of June 1, 2016. New this year in the annual survey is an analysis of IPO governance practices, shareholder engagement and data breach trends, all of which have become hot-button issues for companies and their boards.

Proxy access

The number of proxy access proposals submitted for the 2016 proxy season rose significantly compared to 2015. During the past year, 69 percent of the Top 100 Companies, 40 percent of the S&P 500 and 34 percent of Fortune 500 companies have enacted proxy access.

Proposals submitted for the 2016 proxy season increased from 116 in 2015 to 200 as of Aug. 31, 2016.

Bylaw adoptions totaled 226 from Sept. 2015 to Aug. 2016, compared to just 32 at the end of the same period a year before.

75 proposals requesting adoption of proxy access were included in proxy statements and voted on for the 2016 proxy season as of Aug. 31, 2016.

IPO governance

This year, the survey analyzed the governance practices adopted at companies formed through an IPO.  The move is, in part, a response to proxy advisory service ISS Governance’s announcement that it will consider recommending a vote against directors of newly public companies due to the adoption, prior to or in connection with an IPO, of governance policies that diminish shareholder rights.

The firm’s survey of 62 IPO companies priced at $100 million or more in 2015 found that most adopted practices that ISS identifies as either actually or potentially problematic.

“Investors have traditionally been less sensitive to the specifics of corporate governance practices at newly public companies,” says Richard Alsop, a capital markets partner with the firm. “Given the recommendations from ISS, we expect law firms and banks will continue to advise IPO companies not to overreact to the new policy, but we will watch this one closely.”

Shareholder activism

Shareholder activism continued to gain momentum over the past year, the survey found. Seven of the top 100 Companies were faced with activist campaigns, compared with eight in 2015. Activists were involved in several large, high-profile M&A transactions which faced significant opposition from antitrust regulators.

“Shareholder activism remains an area of significant focus for corporate boards,” says Rory O’Halloran, an M&A partner with the firm. “Although some activist funds and companies targeted by activists have been seen as underperforming over the past year, activist funds continue to manage large amounts of capital. Consequently, any meaningful downturn in the level of activist activity seems unlikely.”

At the seven top 100 companies that were the subject of public shareholder activism campaigns, the activists used publicly disclosed letters or presentation, filed a 13-D with the SEC or held a private meeting (later reported in the media).

Areas of focus by activists at these seven companies included M&A transactions as well as capital distribution and governance practices.

Board leadership and diversity

This year’s survey reveals that 23 percent of board seats at the top 100 companies are held by women, up from 22 percent in 2015. Only 15 of these companies have boards composed of 30 percent or more women members, down from 16 last year. Three of these companies have a board of 40 percent or more women members, up from two in 2015.

Women serve as CEO at 13 of the Top 100 companies, compared to 11 in 2015, and as CFO at 12 of these companies, compared to 14 in 2015. Only one company has a woman in both of these senior executive positions.

The average board tenure of male and female directors is about the same, with men serving 8.54 years on average and women serving 8.36 years.

The average age of male board members is 63.8 and the average age of female board members is 61.3.


Approval rates for say-on-pay votes in excess of 90 percent have climbed from 67 percent in 2012 to 78 percent in this year’s survey.  In addition, driven by the SEC’s long-awaited rules to implement Section 954 of the Dodd-Frank Act, 90 of the top 100 companies surveyed have voluntarily implemented clawback policies, up from 87 last year. Only 15 of these companies require mandatory clawbacks, increasing from 12 last year.

“Increasingly, we are seeing more thoughtful disclosure on a company’s performance and compensation, including the governance steps that reinforce the processes behind executive pay,” says Doreen Lilienfeld, practice group leader of the firm’s compensation, governance & ERISA group. “Say on pay has had an enormous impact on the way companies approach executive compensation. This is a positive development from a governance and issuer perspective and for retention.”

94 of the Top 100 Companies that held a say-on-pay vote in 2016 received approval, up from 93 in 2015.

83 of the Top 100 Companies included an executive summary in their CD&A highlighting company performance, pay-for-performance and good corporate governance features, down from 87 in 2015.

43 of the Top 100 Companies have included some form of alternative pay disclosure in their CD&A, down from 52 last year.

Since 2014, proxy summaries have increased more than 25%, and 76 of the Top 100 Companies provided an up-front “proxy summary” highlighting key points of the entire proxy, including executive compensation disclosures.

Shareholder engagement

The survey also looked at shareholder engagement and the many engagement methods employed by public companies, including those required by regulatory bodies and expected by shareholders.

81 percent of the Top 100 Companies made shareholder engagement disclosures in their annual proxy statement.

60 percent of the companies making shareholder engagement disclosures in their annual proxy statements disclosed the reasons why they engage.

62 of the Top 100 Companies disclosed in their annual proxy statement the extent of their outreach to/contact with shareholders.