As recently highlighted in the Harvard Law School Forum on Corporate Governance and Financial Regulation, a report (the Report) by Institutional Shareholder Services (ISS) found that majority voting practices and annual board elections, along with increases in board diversity, are the new norm.
The Report examined the public filings of Standard & Poor's U.S. "Super 1,500" companies (S&P 1500) comprised of the S&P 500, MidCap 400 and SmallCap 600 indices from the period of July 1, 2014 through June 30, 2015.
Majority Voting and Annual Elections
Majority voting is now the clear market standard amongst S&P 500 companies, with over 88 per cent of companies in the index having adopted this practice. While larger companies had initially led the way in adopting these "accountability enhancements", the Report notes that SmallCap 600 and MidCap 400 companies are now adopting majority voting standards at a faster pace than their S&P counterparts had in 2015.
Annual elections have also increased in prevalence, with over 60 per cent of S&P 1500 companies holding annual elections. The largest jump occurred last year with a rise from 60 to 64 per cent. Over 80% of S&P 500 companies now hold annual elections (and only 84 boards continue to hold staggered elections).
Board Diversity
As discussed in one of our earlier posts, diversity has been a top priority for boards. Advocates for board diversity contend that different backgrounds and perspectives will enhance a board's effectiveness and will ultimately lead to an increase in diversity throughout the corporate hierarchy.
ISS' Report indicates that there has been a market-wide increase in board diversity over the past five years. Ninety-eight per cent of S&P 500 boards have at least one female member while 79 per cent have at least one minority board member. While the Report notes that companies with larger market caps have higher levels of gender and ethnic diversity, 90 per cent of MidCap boards and 78 per cent of SmallCap boards have at least one female or minority director, and the numbers suggest that these numbers will continue on an upward trend.
Board accountability and composition continue to inhabit the public corporate governance dialogue. Companies would be prudent to turn their attention to, if they have not already done so, incorporating what ISS calls "the new normal".
The author would like to thank Shreya Tekriwal, summer student, for her assistance in preparing this legal update.
About Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.
Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.
For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.
Law around the world
nortonrosefulbright.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
