(Orrick) – “Corporate Governance Features for Silicon Valley and San Francisco Bay Area Public Companies”

(17-page report  Ed Batts, Global Chair of Orrick’s M&A and Private Equity group.)   – ”Corporate governance features have Executive Summary become increasingly prominent for public companies. This has accelerated as economic-oriented activist investors team with institutional investors to serve as catalysts for change. We are often asked by clients in the course of our practice:

What do other companies do?

We thought it would be useful to compare the three primary governance documents – certificate/ articles of incorporation, bylaws and corporate governance guidelines – of Silicon Valley and San Francisco Bay Area publicly traded companies.

We focused on three general areas:
• Board of Directors
• Shareholder Actions
• General Provisions


Executive Summary

Dual class common stock
These structures, in which generally founders retain super-voting power, continue to be in the minority but with a significantly different corporate governance profile. 16 of 105 Technology Companies, none of 16 Life Sciences companies and 6 of 32 companies in other sectors had dual class common stock.

Exclusive forum provisions
Limit stockholder derivative class actions suits to a single legal jurisdiction—usually the state of incorporation, such as Delaware. Their adoption continues to surge. Almost 50% of companies with non-dual class common stock structures have adopted these provisions, the concept of which only originated a few years ago.

Proxy access
Remains limited but growing fast, as less than 20% of companies in the study have adopted provisions allowing groups of up to 20 stockholders who combined have held at least 3% of a company’s common stock for at least 3 years to nominate directors for up to 20% of the board of directors.

Director age limits
Remain a minority—with less than 25% of companies having adopted some age limit, and director tenure limits are an even smaller fraction—at less than 5% generally

Staggered boards
Remain surprisingly popular. Around 40% of dual class and non-dual class technology companies alike still have some form of a staggered board, though these tend to be weighted somewhat towards recently public companies.

Majority voting formulations
Continue to sweep. Over 70% of non-dual class technology public companies have some variation of provisions requiring a director nominee to secure a majority of votes cast in an uncontested election. Almost all of these companies, however, allow the board to use their judgment to retain a director—which as a practical matter, has happened frequently in a failed vote.

State of incorporation
Almost all companies (other than relatively arcane Real Estate Investment Trust (REITs)) are incorporated in Delaware. Excluding REITs, 138 of 149 companies are incorporated in Delaware, 10 in California and 1 overseas. … ”

See the full detailed report to see what bay area companies do in this area:

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