Governance Practices for IPO Companies: A Davis Polk Survey

Amid the recent uptick in U.S. IPO transactions to levels not seen since the heady days of 1999 and 2000, Davis Polk’s pipeline of deals remains robust, leading us to believe that strength in the U.S. IPO market will continue in the near future. With ongoing pressure on companies that are past the IPO stage to update or modify their corporate governance practices to align with the views of some shareholders and proxy advisory groups, we thought this would be a good time to review corporate governance practices of newly public companies to see if they have also shifted in recent years. Our survey is an update of our October 2011 survey and focuses on corporate governance at the time of the IPO for the 100 largest U.S. IPOs from September 2011 through October 2013. Results are presented separately for controlled companies and non-controlled companies in recognition of their different governance profiles.

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Our survey shows that in many ways, corporate governance practices remain unchanged from earlier years: the pressure to update or modify practices at seasoned companies has had only a limited impact on companies at the IPO stage. For instance, in our survey of non-controlled companies:

• 98% authorized blank check preferred stock (though none had a shareholder rights plan in place)
• 93% had plurality standards for director elections
• 89% effectively prohibited shareholder action by written consent
• 70% had classified boards
• 70% required a supermajority vote for amending bylaws and
• only 48% divided the roles of chairman and CEO.

On the basis of experience to date, and excluding true outliers, we do not think an IPO company’s corporate governance structure has a meaningful impact on the success of its IPO or on the willingness of investors to participate. As a result we believe that IPO companies can continue to tailor their governance practices to fit their individual preferences.