Cooley recently published its inaugural “Post IPO Governance Report,” which analyzes more than 225 US IPOs from 2017 through 2021 in order to explore how their governance structures evolved during the first years after an IPO. The report looks at governance structures, voting matters, board and leadership changes, and governance and compensation practices. Here’s an excerpt from the report’s discussion of classified board practices:

Classified boards are a defining feature of recent IPO governance, with approximately 88% of the IPO Companies adopting a classified board structure at the time of IPO. While this structure is prevalent across industries, notable variation exists. For example, classified boards are nearly universal among life sciences companies (97%), while about one-fifth of services and retail companies went public with a single class of directors.

Classified boards were more common among noncontrolled companies (91%) than controlled companies (83%), suggesting the structure is viewed as a stabilizing mechanism in the absence of a controlling shareholder. Controlling founders or sponsors, meanwhile, may rely on it less to safeguard control.

Prevalence was also higher among PE- and VC-backed companies (95% and 90%, respectively), reflecting lower sensitivity among these financial sponsors to governance features, such as classified boards, that are often viewed less favorably by institutional investors and proxy advisors.

The report says that classified boards remain the dominant structure for the post-IPO companies, but notes that approximately 10% of the companies that went public with a classified board during the relevant period have opted to declassify. It also says that declassification generally resulted from institutional investor or proxy advisor pressure and is more common among larger companies and those in retail and other consumer-facing industries. Of the 15 companies that have declassified their boards, 12 did so through a management proposal, while the remainder declassified through sunset provisions built into charter documents.

– John Jenkins