Small- and mid-sized company governance trends
The Society of Corporate Secretaries & Governance Professionals (the Society) and the EY Corporate Governance Center (EY CGC) present governance trends and practices at US companies: a review of small- and mid-sized companies, which offers an overview of trends in corporate governance practices on a wide range of topics.
This data-intensive report is based on actual company practices and board composition as disclosed in proxy statements filed with the Securities and Exchange Commission. It covers companies in the Russell 3000 index, and data is from EY CGC’s proprietary Corporate Governance Database.
This report is unique in that it focuses on the governance practices of small- and mid-cap companies – an area in which little attention has been given and limited data is available. This publication is a reference guide and tool for understanding the governance and compensation practices of companies based on size and industry and, where appropriate, considering the historical landscape.
This review of governance practices and trends at small and mid-cap companies – including as compared to both large-cap companies and all companies in the Russell 3000 – provides unique insights into how corporate governance has changed for these companies during the five-year period between 2007 and 2012.
These changes occurred against a backdrop of demands for greater transparency and access to more accurate and relevant information by regulators, legislators, investors and other stakeholders. The rate of change varies by company size and, in some cases, industry.
Key findings include:
- Strengthening of board oversight and accountability
There is significant ongoing transformation in the structure of director elections as companies move from staggered to annual elections for the full board, and implement majority voting requirements (versus plurality voting). However, the pace of change is much slower among smaller companies.
- Board composition decisions shaped by efforts to balance existing, more seasoned directors with new perspectives, even as board and key committee sizes decline
Board composition is a high priority as companies navigate the challenging economic, competitive and regulatory landscape under close scrutiny by stakeholders.
- Market cap breakdown highlights differences in executive compensation
Data shows that compensation values and practices vary significantly based on size and industry. In the last three years, from 2010 to 2012, total pay has increased for named executive officers (NEOs).
- Investors more influential on corporate governance
Through shareholder proposal submissions and strong voting support, investors are driving change and prioritizing governance reform in board structure, takeover protections and board composition to enhance board accountability to shareholders. However, larger companies are much more likely to receive shareholder proposals.