U.S. Board Study: Board Accountability Practices Review

APRIL 17, 2018

Governance practices between S&P 500 and the rest of the members of the S&P 1500 continue to differ significantly. More importantly, the rate of governance change between the two groups varies in many areas, as large-caps tend to adopt shareholder-friendly board accountability practices more quickly compared to smaller firms. For example, annual elections are now the standard among large-cap firms, and are becoming more common among mid-caps. However, progress at small-cap firms has stalled, while there appears to be a resurgence of classified boards at micro-cap companies. In light of a surge in restrictive governance structures at younger firms, such as dual-class shares and classified boards, investors realize that the path to better board accountability is not a fixed trajectory towards progress. Moreover, the persistent difference in practices between large-caps and the rest of the investee universe raises the question of whether companies outside the S&P 500 are held to high enough governance standards. As such, engagements to improve board accountability will likely continue with the same intensity as in prior years.

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