December 16, 2016

CEO Succession: S&P 500 Disclosures Short on Detail

A new Equilar study notes that while more than 1/3rd of the S&P 500 disclose in their proxy statements that they have a CEO succession plan, only about 3% provide any details about what that plan entails.  As this excerpt notes, CEO turnover has increased significantly over the past five years:

In the last five years, the number of S&P 500 CEO retirements, resignations or terminations has increased incrementally year over year, to the point where there has been more than 10% turnover at the CEO position every year across the index. As of October 31, 2016, there had been 59 CEOs who had either left their positions or announced that they would before the year’s end, up from 56 in all of 2015 and from 48 in 2012—nearly a 25% increase in a five-year timeframe.

While there’s no line-item requirement compelling disclosure about CEO succession planning, increased investor & proxy advisor scrutiny in recent years has turned up the heat on boards to clarify their strategy and risk oversight in public filings – and if CEO turnover continues at a high rate, pressure for more detailed disclosure may rise.

Post-IPO Governance: How Much Do Companies Change?

This EY study reports on how the governance practices of the IPO class of 2013 have evolved since the time of their IPOs. Findings include:

– The 2013 IPO companies have actively refreshed their boards, ushering in slightly older, more independent directors with more CEO and public company board experience.

– New directors often replace directors representing the early-stage investors who brought the companies public. Reflecting this fact, 65% of the directors who left their positions had an M&A or private equity background.

– They have also brought more women into the boardroom, but still lag behind more seasoned companies. The average S&P 600 small-cap board was 14% female in 2016, compared with 12% for the 2013 IPO companies.

– The percentage of 2013 IPO companies with independent board chairs has increased from 26% to 34%, while the percentage of those with independent lead directors has grown from 35% to 40%.

Interestingly, the 2013 IPO companies have been slow to adopt a couple of the current good governance talismans – annual election of directors (23% to 28%) & majority voting (11% to 18%).

“SEC Small Business Advocate Act” Heads for President’s Desk

This blog from David Jenson notes that the Senate has passed the “SEC Small Business Advocate Act” – and that it will now head to President Obama’s desk for signature.  If signed into law, the Act will establish an “Office of the Advocate for Small Business Capital Formation” within the SEC – which will be modeled after the Office of the Investor Advocate established under Dodd-Frank.

The Act would also establish the Small Business Capital Formation Advisory Committee, which would provide the SEC with input on capital raising, reporting and governance issues on behalf of privately held small businesses and public companies with a public float of less than $250 million.

This article touts the benefits of the proposed legislation. Maybe I’m too jaded, but – aside from allowing politicians to boast about how they’re looking out for “small businesses, the real job creators and the engines of economic growth” – I’m skeptical that establishing another bureaucratic cubbyhole in an agency that already has too much on its plate is going to do much to move the needle for small business.

John Jenkins