Gender Diversity Gap Still Exists Within IPO Company Boards
Press release from the issuing company
Tuesday, May 27th, 2014
Investors are challenging companies across a wide spectrum of governance practices as their influence in the boardroom has grown. To help IPO-bound companies develop plans to attract maximum long-term investor support by responding to these new governance expectations, EY released a paper today, "Charting the right course: Insights on board governance for US IPO-bound companies." The report, which examines the governance practices of companies in the Standard & Poor's 500 index (S&P 500), as well as companies that went public in the US and were included in the Russell 3000 in 2013, identifies four areas where companies can develop a plan now to address.
"Demonstrating good governance practices, or robust plans to establish and finalize those practices, helps build investor confidence," said Allie Rutherford, Director of Corporate Governance in the EY Center for Board Matters. "When companies demonstrate an understanding and a meaningful level of responsiveness on corporate governance matters, many investors are more likely to give the benefit of the doubt during a rough patch – an important element in long-term success."
What should leading IPO-bound companies do? EY outlines four areas of focus.
- Independent board leadership: Independent board leadership has grown substantially in recent years among S&P 500 companies – from just 8% in 2002 to 71% in 2013. However, just over half of IPO companies have independent board leadership. IPO companies often start out as a public company with separate chair and CEO roles, but move away from this structure by combining duties when they bring on a new CEO.
- Annual director elections: Large companies are moving away from classified boards and plurality voting in director elections. Instead, they are focusing on demonstrating greater board accountability to investors. Given this momentum, investors are now looking at smaller companies to adopt these measures as well. Companies that can demonstrate that they have plans in place regarding director elections and majority voting are very likely to fare better with investors.
- Diversity and independence in board composition: Investors have not been shy about their expectations of gender and ethnic diversity, as well as independence. Women directors make up 18% of the boards of S&P 500 companies but only 8% of IPO company boards. This is one area where IPO companies have an opportunity to move beyond more mature companies. Although IPO company boards tend to be seriously lacking in gender diversity, IPO companies have an advantage mature companies often do not – that of flexibility in changing the composition of their boards.
- One share – one vote: Nearly all investors believe that each share of a public company's common stock should have one vote, and that voting rights should be proportional to holdings. Companies with dual- or multi-class shares are increasingly being targeted by shareholders. IPO companies, which are two to three times more likely to have dual-class stock than more established companies, are best served by moving away from such a structure.
"IPO companies often have some distance to travel before attaining what investors would consider maturity when it comes to governance. But, in today's hot market, the path from IPO to an index can be a short one," said Jackie Kelley, EY Americas IPO Leader. "This means that companies should act now. Though some investors may give new IPO companies time for their governance practices to evolve, companies should develop a plan to address investor expectations as early as possible to attract maximum long-term investor support."