Corporate Governance Practices of U.S. Initial Public Offerings

Size: px

Start display at page:

Download "Corporate Governance Practices of U.S. Initial Public Offerings"

Margaret Stone
6 years ago
Views:

1 Corporate Goverace Practices of U.S. Iitial Public Offerigs (Icludig Cotrolled Compaies) October 2009 Davis Polk & Wardwell LLP IPO Goverace Survey

2 Table of Cotets Overview...1 The Compaies...1 Cotrolled Compaies...2 Primary Listig Exchage...2 Classes of Outstadig Stock at IPO...3 Board Size at IPO...3 Level of Board Idepedece at IPO...4 Classified Board at IPO...4 Separatio of Chairma & CEO...5 Audit Committee Fiacial Experts at IPO...6 Audit Committee Idepedece at IPO...7 Board Electios...8 Supermajority Vote for Chagig the Charter ad Bylaws...9 Poiso Pills...10 Compesatio Cosultats...11 Shareholder Actio By Writte Coset...12

3 Corporate Goverace Practices of U.S. Iitial Public Offerigs Overview As a advisor to uderwriters ad compaies i iitial public offerigs, we surveyed the corporate goverace practices of recet U.S. IPOs to idetify curret market treds. We focused o the top 50 IPOs of U.S. compaies i 2007 ad 2008 i terms of deal size of the IPO.* The deal size of the examied IPOs raged from $136.5 millio to $17.86 billio. The Compaies We examied the followig 50 compaies, spaig 36 idustries: Accuracy Ic. AECOM Techology Corp. America Capital Agecy Corp. America Water Works Compay, Ic. BigBad Networks Ic. Bway Holdigs Co. Ciemark Holdigs Ic. Clearwire Corp. Colfax Corp. Cocho Resources Ic. Cotietal Resources Ic.** CVR Eergy Ic. Deltek Dice Holdigs** Dola Media Co. DuPot Fabros Techology Ic. Employers Holdigs Ic. EergySolutios Ic. FBR Capital Markets GT Solar Iteratioal** Hatteras Fiacial Corp. Hayes Iteratioal** HFF Ic. Ifiera Corp. Iteractive Brokers Group Ic. Itrepid Potash, Ic. Limelight Networks Ic. Masimo Corp. METROPCS Commuicatio Ic. MedAssets Ic. MSCI Ic.** Natioal Ciemedia Ic. Netsuite Ic. Opext Ic. Orbitz Worldwide Rackspace Hostig RHI Etertaimet Ic. Riskmetrics Group Ic. RSC Holdigs Ic. Sadridge Eergy Ic.** Skilled Healthcare Group Solera Holdigs Ic. Superior Offshore It l Switch & Data Facilities Compay, Ic. Tomotherapy Ic. Ulta Salo Cosmetics & Fragrace Ic. Verso Paper** Virgi Mobile USA Visa Ic.** VMware Ic. * Excludes limited parterships ad blak check compaies. **Davis Polk & Wardwell participated i the IPO. 1

4 Corporate Goverace Practices of U.S. Iitial Public Offerigs Cotrolled Compaies Of the 50 compaies examied: 18 (36%) are cotrolled compaies Cotrolled Compaies Cotrolled 36% Not Cotrolled 64% Cotrolled Compay NYSE ad NASDAQ rules provide that if a majority of the votig power of the listed compay is held by a idividual, group or aother etity, the compay is exempt from the NYSE ad NASDAQ requiremets relatig to majority of idepedet directors, a idepedet compesatio committee, ad a idepedet corporate goverace ad omiatig committee. Primary Listig Exchage Of the 50 compaies examied: 28 (56%) compaies are listed o NYSE 21 (42%) compaies are listed o NASDAQ 1 (2%) compay is listed o AMEX Primary Exchage NYSE 56% NASDAQ 42% AMEX 2% 2

(14%) had 2 classes of outstadig stock 3 of the compaies (6%) had 3 or more classes of outstadig stock Classes of Outstadig Stock * Of these 7 compaies, 6 (86%)

5 Corporate Goverace Practices of U.S. Iitial Public Offerigs Classes of Outstadig Stock at IPO Of the 50 compaies examied: 40 of the compaies (80%) had 1 class of outstadig stock 7* of the compaies (14%) had 2 classes of outstadig stock 3 of the compaies (6%) had 3 or more classes of outstadig stock Classes of Outstadig Stock * Of these 7 compaies, 6 (86%) are cotrolled compaies Board Size at IPO Of the 50 compaies examied: The average board size was 7.9 The media board size was 8 Deal Size vs. Board Size The board sizes raged from 4 to 17 members There is o distict correlatio betwee deal size ad board size Board Size Deal Size ($ millio) 3

6 Corporate Goverace Practices of U.S. Iitial Public Offerigs Level of Board Idepedece at IPO Of the 50 compaies examied: The average level of director idepedece was 56% of the board The media level of director idepedece was 59% of the board The levels of director idepedece raged from a low of 9% to a high of 89% Requiremet for director idepedece at time of IPO Subject to a exceptio for cotrolled compaies, the NYSE ad NASDAQ stadards require that the board of directors of a IPO compay cosist of a majority of idepedet directors withi oe year from the date of listig. Classified Board at IPO Of the 50 compaies examied: 32 compaies (64%) had classified boards Classified Boards No 36% Yes 64% 4

7 Corporate Goverace Practices of U.S. Iitial Public Offerigs Separatio of Chairma & CEO Of the 50 compaies examied: 20 compaies (40%) had a separate chairma ad CEO Of those 20 compaies with a separate chairma, 4 (20%) had a idepedet chairma Separatio of Chairma & CEO Idepedet Chairma Yes 40% Idepedet 20% No 60% No- Idepedet 80% Lead Director Of the 50 compaies examied: 7 compaies (14%) had a lead director Lead Director Yes 14% No 86% 5

8 Corporate Goverace Practices of U.S. Iitial Public Offerigs Audit Committee Fiacial Experts at IPO Of the 50 compaies examied: 41 compaies (82%) had 1 fiacial expert 4 compaies (8%) had 2 fiacial experts 2 compaies (4%) had 3 fiacial experts 3 compaies (6%) had o fiacial experts Audit Committee Fiacial Experts at IPO Two 8% Three 4% Zero 6% Oe 82% Disclosure of a Audit Committee fiacial expert at IPO The SEC requires a listed compay to disclose i its aual report whether the board of directors has determied that the compay has at least oe audit committee fiacial expert servig o its audit committee, or why it does ot have oe. A audit committee fiacial expert meas a perso who has the followig attributes: (1) a uderstadig of geerally accepted accoutig priciples ad fiacial statemets; (2) the ability to assess the geeral applicatio of such priciples i coectio with the accoutig for estimates, accruals ad reserves; (3) experiece preparig, auditig, aalyzig or evaluatig fiacial statemets that preset a breadth ad level of complexity of accoutig issues that are geerally comparable to the breadth ad complexity of issues that ca reasoably be expected to be raised by the compay s fiacial statemets, or experiece actively supervisig oe or more persos egaged i such activities; (4) a uderstadig of iteral cotrol over fiacial reportig; ad (5) a uderstadig of audit committee fuctios. 6

9 Corporate Goverace Practices of U.S. Iitial Public Offerigs Audit Committee Idepedece at IPO Of the 50 compaies examied: 35 (70%) compaies had a completely idepedet audit committee at the time of its IPO 5 (10%) compaies had a 2/3 idepedet audit committee at the time of its IPO 1 (2%) compay had a 1/2 idepedet audit committee at the time of its IPO 9* (18%) compaies had a 1/3 idepedet audit committee at the time of its IPO Audit Committee Idepedece at IPO 2/3 Idepedet 10% 1/2 Idepedet 2% 1/3 Idepedet 18% Completely Idepedet 70% *5 of these 9 compaies (56%) are cotrolled compaies Audit Committee idepedece at time of IPO Uder NYSE ad NASDAQ rules, a IPO compay must have at least oe idepedet member of the audit committee at the time of listig, a majority of idepedet members withi 90 days of its registratio statemet beig declared effective ad a fully idepedet audit committee withi oe year of its registratio state beig declared effective. I additio to the NYSE/NASDAQ idepedece stadards applicable to all idepedet directors, audit committee members are required to meet additioal idepedece requiremets set forth by the SEC, which provide that a director who serves o the listed compay s audit committee may ot, other tha i his or her capacity as a member of the audit committee, the board of directors, or ay other board committee: (1) accept ay cosultig, advisory, or other compesatory fee from the listed compay (excludig fixed, o-cotiget paymets uder a retiremet pla for prior service with the listed compay); or (2) be a affiliated perso of the listed compay. 7

10 Corporate Goverace Practices of U.S. Iitial Public Offerigs Board Electios Of the 50 compaies examied: 44 (88%) required a plurality stadard for board electios 6 (12%) required a majority stadard for board electios* Board Electios Majority 12% Plurality 88% *Of those 6 compaies, 3 compaies have a director resigatio policy. Votig stadard for directors electios uder Delaware Law Uder Delaware Law, i the absece of a differet specificatio i the certificate of icorporatio or bylaws of the compay, directors shall be elected by a plurality votig system. Uder plurality votig system, the omiees for directorships are elected based o who receives the highest umber of affirmative votes cast. Uder a majority votig system, a omiee for directorship is elected if he or she receives the affirmative vote of a majority of the total votes cast for ad agaist such omiee. 8

11 Corporate Goverace Practices of U.S. Iitial Public Offerigs Supermajority Vote for Amedig the Charter & Bylaws Of the 50 compaies examied: 33 (66%) compaies required a supermajority shareholder vote for amedig the charter ad/or the bylaws Of the 33 compaies that required a supermajority vote, 5 (15%) compaies required a vote of at least 75% or greater 17 (34%) compaies did ot require a supermajority shareholder vote for amedig the charter ad/or the bylaws Supermajority for Chagig the Charter ad/or the Bylaws No 34% Yes 66% Supermajority Threshold of Equal or Greater tha 75% Equal to or greater tha 75% (15%) Less tha 75% (85%) 9

43 (91%) had authority to issue blak check preferred stock Existece of Shareholders Rights Pla Authorized to Issue Blak Check Preferred Stock Yes 6% Authorized 91% No 94% Not Authorized 9% Authority

12 Corporate Goverace Practices of U.S. Iitial Public Offerigs Poiso Pills Of the 50 compaies examied: 3 (6%) compaies had shareholders rights plas ad 47 (94%) compaies did ot Of the 47 compaies that did ot have shareholders rights plas, 43 (91%) had authority to issue blak check preferred stock Existece of Shareholders Rights Pla Authorized to Issue Blak Check Preferred Stock Yes 6% Authorized 91% No 94% Not Authorized 9% Authority to issue Blak Check preferred stock A compay may iclude i its authorized ad uissued stock a certai amout of udesigated preferred shares. The board is authorized to issue preferred shares i oe or more series ad to determie ad fix the desigatio, votig power, preferece ad rights of the shares of each such series ad ay of its qualificatios, limitatios or restrictios. The existece of blak check preferred stock allows the board to issue preferred stock with super votig, special approval, divided or other rights or prefereces o a discrimiatory basis without shareholders vote. 10

13 Corporate Goverace Practices of U.S. Iitial Public Offerigs Compesatio Cosultats Of the 50 compaies examied: 29 (58%) compaies disclosed the use of compesatio cosultats Of those 29 compaies that disclosed usig cosultats, 26 specified the cosultat used The specified cosultats icluded: CCA Compesatio Strategies Ic. Compesia, Ic. Delphi Maagemet Solutios Fredric W. Cook ad Co., Ic Hewitt Associates Logecker & Associates Mercer, LLC Mercer Huma Resource Cosultig Pearl Meyer & Parters Strategic Apex Group The Survey Group Towers Perri Valere Cosultig LLC Watso Wyatt Worldwide Compesatio Cosultats Disclosure No 42% Yes 58% Compesatio Cosultats The SEC requires a listed compay to disclose i its S-1 ad its proxy statemet ay role of compesatio cosultats i determiig or recommedig the amout or form of executive ad director compesatio, idetifyig such cosultats, statig whether such cosultats are egaged directly by the compesatio committee (or persos performig the equivalet fuctios) or ay other perso, describig the ature ad scope of their assigmet, ad the material elemets of the istructios or directios give to the cosultats with respect to the performace of their duties uder the egagemet. 11

14 Corporate Goverace Practices of U.S. Iitial Public Offerigs Shareholder Actio by Writte Coset Of the 50 compaies examied: 16 (32%) compaies permit shareholder actio by writte coset 34 (68%) compaies prohibit shareholder actio by writte coset Permits Shareholder Actio by Writte Coset Yes 32% No 68% 12

15 Corporate Goverace Practices of U.S. Iitial Public Offerigs Davis Polk s Capital Markets Practice Davis Polk & Wardwell has oe of the world s premier capital markets practices. We provide a full rage of services for issuers ad uderwriters i iitial public offerigs, follow-o offerigs, ivestmet-grade ad high-yield debt issuaces, ad i the desig ad executio of sophisticated equity derivative products. As cousel of choice for may of the world s leadig ivestmet baks ad for a broad spectrum of U.S. ad o-u.s. issuers, Davis Polk cosistetly raks amog the top hadful of law firms globally i capital markets work. Davis Polk is a recogized leader advisig o global iitial public offerigs, some of our recet highlights iclude advisig Idustrial ad Commercial Bak of Chia (ICBC) o its $21.9 billio Rule 144A/Regulatio S iitial public offerig of H shares ad A shares this is the largest-ever IPO. advisig the joit bookruers ad represetatives of the uderwriters for the iitial public offerig of Visa this is the largest U.S. IPO i history ad the secod-largest IPO ever. advisig Baco Satader (Brasil) o its $8 billio iitial public offerig of uits ad ADSs this is the largest-ever iitial public offerig by a Lati America issuer ad the largest IPO so far i advisig Metallurgical Corporatio of Chia o its $5.3 billio Rule 144A/Regulatio S iitial public offerig of H shares ad A shares this is the largest IPO i Hog Kog ad the third-largest global IPO so far i advisig the joit global coordiators o the 3.85 billio ($5.44 billio) Rule 144A/Regulatio S iitial public offerig of Criteria CaixaCorp this was the largest-ever Spaish iitial public offerig at the time of its completio. advisig Aozora Bak o its 380 billio (US$3.22 billio) Rule 144A/Regulatio S iitial public offerig this was the largest IPO by a Japaese issuer i eight years. advisig the Verisk Aalytics o its $2.15 billio SEC-registered iitial public offerig of Class A commo stock this is the largest IPO by a U.S. issuer so far i advisig Shada Games o its $1 billio SEC-registered iitial public offerig of commo shares ad ADSs. advisig the sole global coordiator ad sole bookruer o the $815 millio Regulatio S iitial public offerig of Safaricom by the Govermet of Keya this is the largest-ever equity offerig i East Africa. advisig Artio Global Ivestors o its $718 millio SEC-registered iitial public offerig of Class A commo stock. 13

16 Corporate Goverace Practices of U.S. Iitial Public Offerigs Our Lawyers Our global capital markets practice has 235 lawyers, icludig 46 parters i our offices aroud the world. If you have ay questios regardig this memoradum, please cotact ay of the lawyers listed below or your regular Davis Polk cotact. New York Nig Chiu ig.chiu@davispolk.com Ala Dea ala.dea@davispolk.com Richard A. Drucker richard.drucker@davispolk.com Joseph A. Hall joseph.hall@davispolk.com Michael Kapla michael.kapla@davispolk.com Keith L. Kearey keith.kearey@davispolk.com Deaa L. Kirkpatrick deaa.kirkpatrick@davispolk.com Richard J. Sadler richard.sadler@davispolk.com Richard D. Truesdell, Jr richard.truesdell@davispolk.com Melo Park Julia Cowles julia.cowles@davispolk.com Bruce K. Dallas bruce.dallas@davispolk.com Ala F. Deeberg ala.deeberg@davispolk.com William M. Kelly william.kelly@davispolk.com Sarah K. Solum sarah.solum@davispolk.com Mischa Travers mischa.travers@davispolk.com Marti A. Welligto marti.welligto@davispolk.com 14

Review Procedures and Reporting by Peer Reviewer

Review Procedures and Reporting by Peer Reviewer Review Procedures ad Reportig by Peer Reviewer QUALITY OF REPORTING BY AUDITORS Desired Quality Audit report to cotai a clear writte expressio of opiio o the fiacial iformatio PU should have policies ad