Governance Practices of IPO Companies – Is Carlyle More Mainstream Than You Thought?

Governance Practices of IPO Companies – Is Carlyle More Mainstream Than You Thought?

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

IPO Companies

S&P 500 Companies*

Majority Voting for Directors



Classified Boards



Lead Director



Board Independence



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.

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