Considering that there continues to be growing pressure on larger companies to update their corporate governance provisions in response to both government regulations and pressure from shareholders and advisory groups, we thought this would be a good time to review the corporate governance practices at the time of the IPO to see which of these practices were being adopted by IPO companies.  We surveyed corporate governance at the time of the IPO for the largest 50 U.S. company IPOs from January 2009 through August 2011. Our survey separates the data for “controlled companies” (as defined in NYSE and NASDAQ listing standards) and noncontrolled companies.

Our survey shows that the pressure to update corporate governance practices at the larger companies has had only limited effect on companies at the IPO stage and that IPO companies still have much latitude when designing their governance structures.  For instance, we found that only 6% of IPO companies had majority voting for directors (versus 70% of S&P 500 companies according to a 2011 ISS Survey) and 78% had classified boards (versus 39% for S&P 500 companies).

As would be expected, some of the corporate governance practices at the
“controlled companies” we surveyed were significantly different from those found at the noncontrolled companies.  For example, 82% of controlled companies were listed on the NYSE, while only 52% of the noncontrolled companies we surveyed were. Also, the average level of director independence at the controlled companies was 39% versus 74% at the noncontrolled companies.

As compared to our 2009 IPO survey, we found some small movement towards  practices more commonly found at seasoned issuers.  We have also added a new section, “Exclusive Forum Provisions,” reflecting the new trend of public companies incorporating provisions in either their charter or bylaws requiring certain litigation against the company to be brought exclusively in the company’s state of incorporation.

Overall, it remains the case that the IPO companies still have considerably more freedom than seasoned issuers when designing their corporate governance structures.