The Conference Board Governance Center Blog


Governance Practices of IPO Companies – Is Carlyle More Mainstream Than You Thought?

A Director Note by Richard Sandler and Elizabeth Weinstein, Davis Polk & Wardell, recently published by The Conference Board examines the corporate governance practices of the top 50 IPO companies from 2009 through August 2011. A copy of the full Director Note is available here.

Certainly, the Carlyle IPO may become the poster child for unfriendly governance. Carlyle has limited the rights of shareholders that are typically present in public companies. For example, management will control the company, and public investors will have no right to elect directors so long as Carlyle affiliates own 10 percent or more of the company. There is no commitment to date of a majority independent board and no independent compensation committee. Carlyle has a right to summarily repurchase all of the public’s shares if less than 10 percent of the company is held by those shareholders. Receiving the greatest attention are provisions that limit fiduciary duties of controlling persons and mandate arbitration of investor claims. It remains to be seen whether mandatory arbitration will be accepted by the Securities and Exchange Commission.

While the proposed Carlyle IPO was filed after the study period closed and is unique in the far reaching limitations on rights of public investors, the study found that governance practices are not a high priority for IPO companies. The data shows that the pressure to update corporate governance practices at existing public companies has had only limited effect on companies at the IPO stage.

Comparison of Corporate Governance
Provisions in IPO Companies vs. S&P 500 Companies

IPO Companies

S&P 500 Companies*

Majority Voting for Directors



Classified Boards



Lead Director



Board Independence



Fully Independent Audit Committee



Separate Chairman & CEO



*Information for S&P 500 companies is as of June 30, 2010 and is from Institutional Shareholder Services, Board Practices, 2011 Edition.

With respect to some other key concerns for shareholders, the study found:

Classes of Outstanding Common Stock at IPO

82% of the companies had only one class of common stock.

Poison Pills and Blank Check Preferred Stock

None of the companies surveyed had a shareholders’ rights plan and all but one company were authorized to issue “blank check” preferred stock.

Exclusive Forum Provisions

Seven companies had exclusive forum provisions, all of which specified Delaware as the exclusive forum. Of those seven companies, six adopted the exclusive forum provision in the company’s charter and one adopted it in the company’s bylaws.

A close look at these largest IPOs during the 2009-2011 study period reveals that many of the companies are mid- or smaller-cap companies. The Conference Board’s Board Practices Report showed that many governance practices have been less widely adopted by smaller companies. So company size may be a significant contributor to the differences in practices between the IPOs studied and the S&P 500.

So long as IPO companies find a market for their offering, despite the lack of many governance best practices, these differences are likely to persist. It is logical to ask why investors continue to support IPOs of companies like Carlyle, if governance practices are not up to par compared to the S&P 500. But structural incentives may make this more difficult in practice. For investors seeking the highest returns, particularly those that are competing to manage investment dollars, foregoing these IPOs can result in potentially lower returns or letting return go to other competing investors.

Barbara Blarckford, Senior Advisor, The Conference Board Governance Center

Barbara Blarckford, Senior Advisor, The Conference Board Governance Center

Barbara Blackford is currently a Senior Advisor to The Conference Board Governance Center. Barbara recently retired from Superior Essex Inc., a Fortune 750 wire and cable manufacturer acquired by LS Corp, a leading South Korea exchange listed company and a member of the LS Group. Barbara has also served as General Counsel of AirGate PCS, a NASDAQ listed Sprint affiliate and Associate General Counsel of Monsanto Company. While at Monsanto, she was head of the Corporate Securities, Corporate Governance and Mergers & Acquisitions legal functions and oversaw more than $40 billion in M&A activity. In all of these roles, she was primarily responsible for providing legal support to the Board of Directors, securities compliance and executive compensation. Barbara served on the Board of Directors of the Society of Corporate Secretaries and Governance Professionals and is a frequent speaker on governance and securities laws. She served as the Reporter for The Conference Board Task Force on Executive Compensation.

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