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
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).
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
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
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