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Corporate GovernancePractices of U.S. Initial Public Offerings(Excluding Controlled Companies)
October 2011
Davis Polk & Wardwell llP
IPO
Go
vern
ance
Sur
vey
Table of Contents
Overview ..........................................................................................................................................1
The Companies ...............................................................................................................................1
Significant Findings..........................................................................................................................2
Primary Listing Exchange ................................................................................................................3
Classes of Outstanding Common Stock at IPO ..............................................................................3
Board Size at IPO............................................................................................................................4
Level of Board Independence at IPO ..............................................................................................4
Classified Board at IPO ...................................................................................................................5
Separation of Chairman and CEO...................................................................................................6
Lead Director ...................................................................................................................................6
Audit Committee Financial Experts at IPO ......................................................................................7
Audit Committee Independence at IPO...........................................................................................8
Voting in Uncontested Board Elections ...........................................................................................9
Supermajority Vote for Amending the Charter and Bylaws ...........................................................10
Poison Pills and Blank Check Preferred Stock..............................................................................11
Exclusive Forum Provisions...........................................................................................................12
Compensation Consultants............................................................................................................13
Shareholder Action by Written Consent.........................................................................................14
1
Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Overview
As an advisor to underwriters and issuers in initial public offerings, we surveyed the corporate
governance practices of recent U.S. IPOs to identify current market trends. We focused on the top 50
IPOs of U.S. companies from January 1, 2009 through August 31, 2011 in terms of deal size of the
IPO.* The deal size of the examined IPOs ranged from $132.0 million to $18.14 billion.
The Companies We examined the following 50 companies, spanning 28 industries:
* Excludes controlled companies, limited partnerships, REITS, trusts and blank check companies.
**Davis Polk & Wardwell participated in the IPO.
A123 Systems, Inc.
Accretive Health, Inc.
Air Lease Corp.**
Artio Global Investors Inc.**
BankUnited, Inc.**
Bravo Brio Restaurant Group, Inc.
C&J Energy Services, Inc.
CBOE Holdings, Inc.
Cloud Peak Energy Inc.**
Cornerstone OnDemand, Inc.
Demand Media, Inc.
DigitalGlobe, Inc.**
ExamWorks Group, Inc.
Financial Engines, Inc.
First Connecticut Bancorp, Inc.
FleetCor Technologies, Inc.
Fortinet Inc.**
Fusion-io, Inc.
General Motors Co.**
Green Dot Corp.
HomeAway, Inc.
Imperial Holdings, Inc.
IntraLinks Holdings, Inc.
Ironwood Pharmaceuticals, Inc.**
LinkedIn Corp.
Molycorp, Inc.**
NetSpend Holdings Inc.
Northwest Bancshares, Inc.
Pacific Biosciences of CA, Inc.**
Pandora Media, Inc.**
Primerica, Inc.
QuinStreet, Inc.**
RealD Inc.
RealPage, Inc.
RPX Corp.
ServiceSource International**
Skullcandy, Inc.
SolarWinds, Inc.
Solazyme, Inc.**
STR Holdings, Inc.**
Swift Transportation Co.
Symetra Financial Corp.
Targa Resources Corp.
Tesla Motors, Inc.
The Chefs’ Warehouse, Inc.
The Active Network, Inc.
Vera Bradley Designs, Inc.
Verisk Analytics, Inc.**
Vitacost.com, Inc.
Zipcar, Inc.
Corporate Governance Practices of U.S. Initial Public Offerings
Significant Findings
In doing our research, we compared our findings in this survey to those in our 2009 survey. We found
that generally, despite the growing pressure for certain corporate governance provisions in seasoned
issuers, the corporate governance practices at the IPO companies that we surveyed in 2011 remained
in many ways unchanged from those in our 2009 survey. In both surveys, there were approximately
similar results for the existence of classified boards, voting standards in uncontested board elections and
the percentage of audit committee independence at the time of the IPO. Indeed, we found many fewer
companies separating the role of CEO and Chairman of the board in our 2011 survey—34% as
compared with 52% in the 2009 survey.
We did note, however, some trends, however small, towards more shareholder–friendly provisions:
■ The 2011 survey showed a 74% average level of director independence versus 66% in the 2009survey. Also, of the companies that separate the role of CEO and Chairman, 65% of thosesurveyed in 2011 had an independent chairman versus 19% in the 2009 survey.
■ The 2011 survey also saw an increase in the number of companies that had more than onefinancial expert on their Audit Committee: 32% of companies in the 2011 survey versus 14% inthe 2009 survey.
■ In the 2011 survey, no companies had a poison pill compared to the 2009 survey in which 6% ofcompanies had a poison pill.
Finally, we have added a new section, “Exclusive Forum Provisions.” This addition reflects a growing
trend of public companies to incorporate provisions in either their charter or bylaws requiring certain
litigation against the company to be brought exclusively in the state court of Delaware, the company’s
state of incorporation. The 2011 survey shows that 14% of the companies examined had exclusive forum
provisions.
Corporate Governance Practices of U.S. Initial Public Offerings
2
Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Corporate Governance Practices of U.S. Initial Public Offerings
3
Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Primary listing Exchange
Of the 50 companies examined:
■ 26 companies (52%) are listed on the NYSE
■ 24 companies (48%) are listed on the NASDAQ
Classes of Outstanding Common Stock at IPO
Of the 50 companies examined:
■ 41 companies (82%) had one class of outstanding common stock
■ 6 companies (12%) had two classes of outstanding common stock
■ 3 companies (6%) had three or more classes of outstanding common stock
NYSE52%
NASDAQ48%
Primary Listing Exchange
Classes of Outstanding Stock
Nu
mb
er
of
Co
mp
an
ies 41
36
0
5
10
15
20
25
30
35
40
45
One Class Two Classes Three or More Classes
Board Size at IPO
Of the 50 companies examined:
■ The average board size was 8
■ The median board size was 7
■ The board sizes ranged from 5 to 19 members
■ There is no distinct correlation between deal size and board size
level of Board Independence at IPOOf the 50 companies examined:
■ The average level of director independence was 74% of the board
■ The median level of director independence was 75% of the board
■ The levels of director independence ranged from a low of 29% to a high of 90%
Requirement for director independence at time of IPO
Subject to an exception for “controlled companies,” the NYSE and NASDAQ standards require that
the board of directors of an IPO company consist of a majority of independent directors within one
year of the date of listing.
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
02468101214161820
0 500 1,000 1,500 2,000 2,500 3,000 16,000 18,000 20,000
Deal Size vs. Board Size
Bo
ard
Siz
e
Deal Size($ millions)
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Classified Board at IPO
Of the 50 companies examined:
■ 39 companies (78%) had classified boards
■ 11 companies (22%) did not have classified boards
Classified Boards
No22%
Yes78%
Separation of Chairman and CEO
Of the 50 companies examined:
■ 17 companies (34%) had a separate chairman and CEO
■ Of these 17 companies with a separate chairman, 11 (65%) had an independent chairman
lead Director
Of the 50 companies examined:
■ 13 companies (26%) had a lead director
■ 37 companies (74%) did not have a lead director
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Lead Director
Yes26%
No74%
Separation of Chairman & CEO Independent Chairman
SeparateChairman34%
NoSeparation66%
Independent65%
Non-Independent35%
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Audit Committee Financial Experts at IPO
Of the 50 companies examined:
■ 32 companies (64%) had one financial expert
■ 8 companies (16%) had two financial experts
■ 6 companies (12%) had three financial experts
■ 2 companies (4%) had four financial experts
■ 2 companies (4%) had no financial experts
Disclosure of an Audit Committee financial expert at IPO
The SEC requires a listed company to disclose in its annual report whether the board of directors
has determined that the company has at least one audit committee financial expert serving on its
audit committee, or why it does not have one.
An audit committee financial expert is a person who has the following attributes: (1) an
understanding of generally accepted accounting principles and financial statements; (2) the ability
to assess the general application of such principles in connection with the accounting for estimates,
accruals and reserves; (3) experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can reasonably be expected to be raised
by the company’s financial statements, or experience actively supervising one or more persons
engaged in such activities; (4) an understanding of internal control over financial reporting; and (5)
an understanding of audit committee functions.
Audit Committee Financial Experts at IPO
Two16%
Three12%
Four4%
Zero4%
One64%
Audit Committee Independence at IPO
Of the 50 companies examined:
■ 39 companies (78%) had a fully independent audit committee at the time of their IPOs
■ 2 companies (4%) had a ¾ independent audit committee at the time of their IPOs
■ 9 companies (18%) had a ⅔ independent audit committee at the time of their IPOs
Audit Committee independence at time of IPO
Under NYSE and NASDAQ rules, an IPO company must have at least one independent member of
the audit committee at the time of listing, a majority of independent members within 90 days of its
registration statement being declared effective and a fully independent audit committee within one
year of its registration statement being declared effective.
In addition to the NYSE/NASDAQ independence standards applicable to all independent directors,
audit committee members are required to meet additional specific independence requirements set
forth by the SEC, which provide that a director who serves on the listed company’s audit committee
may not, other than in his or her capacity as a member of the audit committee, the board of directors,
or any other board committee: (1) accept any consulting, advisory, or other compensatory fee from
the listed company (excluding fixed, noncontingent payments under a retirement plan for prior
service with the listed company); or (2) be an “affiliated person” of the listed company.
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Audit Committee Independence at IPO
¾ Independent
4%
Fully
Independent
78%
⅔ Independent
18%
Voting in Uncontested Board Elections
Of the 50 companies examined:
■ 47 companies (94%) required a plurality standard for board elections
■ 3 companies (6%) required a majority standard for board elections*
* Of these 3 companies, 2 companies (66%) have a director resignation policy.
Voting standard for director elections under Delaware Law
Under Delaware Law, in the absence of a different specification in the certificate of incorporation or
bylaws of the company, directors are elected by a plurality voting system. Under the plurality voting
system, the nominees for directorships are elected based on who receives the highest number of
affirmative votes cast. Under a majority voting system, a nominee for directorship is elected if he or
she receives the affirmative vote of a majority of the total votes cast for and against such nominee.
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Plurality94%
Board Elections
Majority6%
Supermajority Vote for Amending the Charter and Bylaws
Of the 50 companies examined:
■ 37 companies (74%) required a supermajority shareholder vote for amending the charter and/or bylaws
■ Of the 37 companies that required a supermajority vote, 12 companies (32%) required a vote of 75% or more
■ 13 companies (26%) did not require a supermajority shareholder vote for amending the charterand/or bylaws
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Supermajority Threshold of Equal to or Greater than 75%
less than75%(68%)
Equal to orgreater than 75%(32%)
No26%
Supermajority for Amending the Charter and/or the Bylaws
Yes74%
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Poison Pills and Blank Check Preferred Stock
Of the 50 companies examined:
■ No companies had a shareholders’ rights plan
■ All but one company (98%) were authorized to issue “blank check” preferred stock
Authority to issue “Blank Check” preferred stock
A company may include in its authorized and unissued stock a certain amount of undesignated
preferred shares. The board of the company is authorized to issue preferred shares in one or more
series and to determine and fix the designation, voting power, preference and rights of the shares
of each such series and any of its qualifications, limitations or restrictions. The existence of “blank
check” preferred stock allows the board to issue preferred stock with super voting, special approval,
dividend or other rights or preferences on a discriminatory basis without a shareholder vote.
No100%
Not Authorized2%
Authorized98%
Existence of Shareholders’ Rights Plan
Authorization to Issue Blank Check Preferred Stock
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Exclusive Forum Provisions
Of the 50 companies examined:
■ 7 companies (14%) had exclusive forum provisions, all of which specified Delaware as theexclusive forum
■ Of these 7 companies with exclusive forum provisions, 6 (86%) adopted them in thecompany’s charter and 1 (14%) adopted them in the company’s bylaws
■ 43 companies (86%) did not have exclusive forum provisions
■ All companies with exclusive forum provisions were from 2010 or 2011 IPOs
Exclusive Forum Provisions
Bylaws14%
Charter86%
Yes14%
No86%
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Compensation Consultants
Of the 50 companies examined:
■ 31 companies (62%) disclosed the use of compensation consultants
■ Of these 31 companies that disclosed using consultants, 29 (94%) specified the consultantused
■ The specified consultants included:
* Towers Perrin and Watson Wyatt merged to form Towers Watson on January 1, 2010.
Compensation Consultants
The SEC requires a listed company to disclose in its Form S-1 and its proxy statement any role of
compensation consultants in determining or recommending the amount or form of executive and
director compensation, identifying such consultants, stating whether such consultants are engaged
directly by the compensation committee (or persons performing the equivalent functions) or any
other person, describing the nature and scope of their assignment, and the material elements of the
instructions or directions given to the consultants with respect to the performance of their duties
under the engagement.
Compensation Consultants Disclosure
Yes
62%
No
38%
Amalfi Consulting
Compensia, Inc.
Dolmat Connell & Partners, Inc.
Exequity
Frederic W. Cook & Co.
Hewitt Associates
IPAS
McLagan, Inc.
Pearl Meyer & Partners
Mercer, LLC
Radford Surveys & Consulting
Syzygy Consulting Group
Towers Perrin*
Towers Watson*
Watson Wyatt*
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Shareholder Action by Written Consent
Of the 50 companies examined:
■ 5 companies (10%) permit shareholder action by written consent
■ 45 companies (90%) prohibit shareholder action by written consent
Shareholder Action by Written Consent Permitted
Yes
10%
No
90%
Corporate Governance Practices of U.S. Initial Public Offerings
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Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Davis Polk’s Capital Markets PracticeDavis Polk & Wardwell LLP has one of the world’s premier capital markets practices. We provide a full
range of services for issuers and underwriters in initial public offerings, follow-on offerings, investment-
grade and high-yield debt issuances, and in the design and execution of sophisticated equity derivative
products. As counsel of choice for many of the world’s leading investment banks and for a broad
spectrum of U.S. and non-U.S. issuers, Davis Polk consistently ranks among the top handful of law firms
engaged globally in capital markets work.
Davis Polk is the premier international IPO advisor. We have extensive experience acting as
counsel to companies, selling shareholders and underwriters in connection with these transactions.
Some recent IPO practice highlights include:
• advising on the five largest IPOs in history, three of which were completed in 2010;
• advising on the largest IPO globally, and the largest in the U.S., Asia and Latin America;
• ranking as the #1 IPO advisor in the U.S. in 2010, 2009 and 2008, having advised on
approximately 30%, approximately 40% and more than 70% of IPOs by volume in 2010, 2009 and
2008, respectively;
• advising the lead managers on the $23.1 billion SEC-registered IPO of common stock and
convertible junior preferred stock of General Motors ― this is the largest IPO in history;
• advising the Agricultural Bank of China on its $22 billion Rule 144A/Regulation S global IPO and
dual listing of H shares and A shares ― this is the second-largest IPO in history and the largest-
ever by an Asian issuer;
• advising the Federal Reserve Bank of New York (FRBNY) on the $20.5 billion Rule 144A/Regulation
S global IPO of common shares of AIA Group. The shares were sold by American International
Group (AIG) and represented the sale of 67.1% of AIG’s formerly 100% stake in AIA ― this is the
largest-ever IPO on the Hong Kong Stock Exchange;
• advising Bankia on its €3.1 billion ($4.4 billion) Rule 144A/Regulation S IPO of ordinary shares ―
this is the first IPO to be conducted by former Spanish savings banks and is the largest IPO
in Spain since December 2007;
• advising Prada on its $2.15 billion Rule 144A/Regulation S IPO and Hong Kong Stock Exchange
listing of ordinary shares ― this is the largest Hong Kong IPO so far in 2011;
• advising PANDORA on its $2 billion Rule 144A/Regulation S IPO of common stock ― this is the
largest Danish IPO since 1994 and the second-largest IPO in Western Europe in 2010;
• advising the joint global coordinators on the €1.3 billion ($1.7 billion) Rule 144A/Regulation S IPO
of common stock of Amadeus IT Holding ― this was Spain’s first public offering on the
Continuous Market of the Spanish Stock Exchanges since 2007;
• advising Arcos Dorados Holdings on its $1.4 billion SEC-registered IPO of Class A shares ― this
is the largest IPO by a Latin American issuer so far in 2011;
• advising the underwriters on the $1.4 billion SEC-registered IPO of Class A shares by Yandex ―
this offering is the biggest technology IPO worldwide in 2011 to date and the largest IPO of
an Internet company since Google’s IPO in 2004;
• advising the lead managers on the $923 million SEC-registered IPO of Class A common stock of
Air Lease Corporation ― this transaction is the jet-leasing industry’s largest-ever IPO;
• advising the underwriters on the $900 million SEC-registered IPO of common stock of BankUnited
― this is the largest U.S. bank IPO in history;
• advising the joint bookrunners on the $681 million Rule 144A/Regulation S IPO of common stock
of Grupo Qualicorp;
• advising Kosmos Energy on its $621 million SEC-registered IPO of common stock;
• advising the lead managers on the $476 million SEC-registered IPO of common stock of NXP
Semiconductors;
• advising the lead managers on the $408 million IPO of common stock of Molycorp;
• advising Pandora Media on its $235 million SEC-registered IPO of common stock; and
• advising the underwriters on the $224 million SEC-registered IPO of ADSs by 21Vianet.
Corporate Governance Practices of U.S. Initial Public Offerings
16
Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Our lawyers
Our global capital markets practice has approximately 235 lawyers, including 46 partners in our offices
around the world.
For more information, please contact:
Phone Email
New York
Sarah E. Beshar 212 450 4131 sarah.beshar@davispolk.com
Maurice Blanco 212 450 4086 maurice.blanco@davispolk.com
Ning Chiu 212 450 4908 ning.chiu@davispolk.com
John G. Crowley 212 450 4550 john.crowley@davispolk.com
Alan Dean 212 450 4126 alan.dean@davispolk.com
Richard A. Drucker 212 450 4745 richard.drucker@davispolk.com
Manuel Garciadiaz 212 450 6095 manuel.garciadiaz@davispolk.com
Joseph A. Hall 212 450 4565 joseph.hall@davispolk.com
Michael Kaplan 212 450 4111 michael.kaplan@davispolk.com
Deanna L. Kirkpatrick 212 450 4135 deanna.kirkpatrick@davispolk.com
Nicholas A. Kronfeld 212 450 4950 nicholas.kronfeld@davispolk.com
Richard J. Sandler 212 450 4224 richard.sandler@davispolk.com
Richard D. Truesdell, Jr. 212 450 4674 richard.truesdell@davispolk.com
Elizabeth Weinstein 212 450 4803 elizabeth.weinstein@davispolk.com
17
Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
Corporate Governance Practices of U.S. Initial Public Offerings
Our lawyers (cont.)
Phone Email
Menlo Park
Julia K. Cowles 650 752 2007 julia.cowles@davispolk.com
Francis S. Currie 650 752 2002 frank.currie@davispolk.com
Bruce K. Dallas 650 752 2022 bruce.dallas@davispolk.com
Alan F. Denenberg 650 752 2004 alan.denenberg@davispolk.com
Daniel G. Kelly, Jr. 650 752 2001 dan.kelly@davispolk.com
William M. Kelly 650 752 2003 william.kelly@davispolk.com
Sarah K. Solum 650 752 2011 sarah.solum@davispolk.com
Mischa Travers 650 752 2014 mischa.travers@davispolk.com
Martin A. Wellington 650 752 2018 martin.wellington@davispolk.com
Corporate Governance Practices of U.S. Initial Public Offerings
18
Davis Polk & Wardwell llP Corporate Governance Practices of U.S. Initial Public Offerings
FOR MORE INFORMATION, CONTACT:
Kevin Cavanaugh
Director of Business Development
212 450 6811
kevin.cavanaugh@dpw.com
davispolk.com
NEW YORK450 lexington Avenue New York, NY 10017212 450 4000 tel 212 450 3800 fax
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