In our earlier post, we provided some early data points on the governance practices of the Silicon Valley 150, specifically relating to the prevalence of the classified board structure and dual or multi-class common stock. In this post, we provide some additional early data points into the Silicon Valley 150 companies’ governance practices, specifically the prevalence of plurality voting for director elections and proxy access bylaws.
Plurality vs. Majority Voting for Director Elections
Under a plurality voting standard, the director nominees who receive the most “for” votes cast, regardless of whether they receive more than 50 percent of the votes cast, are elected to the board of directors. While there are no “against” votes in plurality voting, stockholders are given the option to “withhold” authority to vote their shares in favor of a director nominee in order to express their dissatisfaction concerning that nominee. Conversely, under a majority voting standard, director nominees must receive more “for” votes than “against” votes (i.e., more than 50 percent) to be elected to the board of directors. The plurality voting standard is the default voting standard (i.e., absent an alternate voting standard expressly written into the bylaws) under Delaware law, the state in which most of the Silicon Valley 150 (SV150) companies are incorporated.
Overall, 81 of the SV150 companies, or 54 percent, have a plurality voting standard for the election of directors. The smallest companies (ranked 101-150 in terms of annual sales) are most likely to have a plurality voting standard for director elections at 86 percent. For the largest companies (1-50), this data point is nearly reversed, with only 20 percent having a plurality voting standard for director elections. The SV150 companies follow a similar trajectory in terms of years since IPO: 84 percent of newer public companies (public less than five years) have a plurality voting standard and only 15 percent of more mature public companies (20 or more years public) have a plurality voting standard.
Proxy Access Bylaw
Companies with a proxy access bylaw generally permit stockholders to use the company’s proxy materials to nominate their own candidates for the board of directors, without a formal proxy contest. These bylaws typically require the nominating stockholder to hold a certain percentage of stock for a certain number of years, and limit nominations to a certain percentage of directors. One of the more common formulations is the “3/3/20/20” approach meaning that a group of up to 20 stockholders must hold at least 3 percent of the company’s stock for at least three years and may only nominate up to 20 percent of the board.
Overall, 45 of the SV150 companies, or 30 percent, have adopted a proxy access bylaw. This bylaw is nearly nonexistent at newer public companies, with only 4 percent of companies that have been public less than five years having adopted a proxy access bylaw. Conversely, 70 percent of companies that have been public 20 or more years have adopted a proxy access bylaw. The largest public companies (ranked 1-50 in terms of annual sales) also have a higher prevalence of proxy access bylaw adoption at 64 percent, dipping to 18 percent in the middle tier of companies (51-100). Of the 45 companies that have adopted a proxy access bylaw, 38 have adopted the “3/3/20/20” approach.