by Barbara Blackford
A Director Note by Richard Sandler and Elizabeth
Weinstein, Davis Polk & Wardell, recently published by The Conference Board
examines the corporate governance practices of the top 50 IPO companies from
2009 through August 2011. A copy of the full Director Note is available here.
Certainly, the Carlyle IPO may become the poster child for unfriendly governance. Carlyle has limited
rights of shareholders that are typically present in public companies. For
example, management will control the company, and public investors will have no
right to elect directors so long as Carlyle affiliates own 10 percent or more
of the company. There is no commitment to date of a majority independent board
and no independent compensation committee. Carlyle has a right to summarily
repurchase all of the public's shares if less than 10 percent of the company is
held by those shareholders. Receiving the greatest attention are provisions
that limit fiduciary duties of controlling persons and mandate arbitration of
investor claims. It remains to be seen whether mandatory arbitration will be
accepted by the Securities and Exchange Commission.
While the proposed Carlyle IPO was filed after the study
period closed and is unique in the far reaching limitations on rights of public
investors, the study found that governance practices are not a high priority
for IPO companies. The data shows that the pressure to update corporate
governance practices at existing public companies has had only limited effect
on companies at the IPO stage.
Comparison of Corporate Governance
Provisions in IPO Companies vs. S&P 500 Companies
S&P 500 Companies*
Majority Voting for Directors
Fully Independent Audit Committee
Separate Chairman & CEO
*Information for S&P 500 companies is as
of June 30, 2010 and is from Institutional Shareholder Services, Board
Practices, 2011 Edition.
Read the rest of this article on the Governance Center Blog
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