Boardroom Governance with Evan Epstein
David Bell: Fenwick's 2021 Corporate Governance Survey
Welcome to the Boardroom Governance Podcast. I’m your host, Evan Epstein. In this episode, I talk with David Bell, a partner at Fenwick & West and the co-chair of the firm’s corporate governance practice. David advises startups and other growing private and public companies on VC financings, M&A, IPOs and IP licensing. He also counsels public companies on corporate, securities, governance and compliance matters. David is the author of Fenwick’s corporate governance, proxy season results and gender diversity surveys, which cover a variety of corporate governance matters and trends for the high tech and life science companies based in Silicon Valley. In this podcast, we talk about Fenwick’s 2021 Corporate Governance Survey, a comparison of large public companies and Silicon Valley public companies. We dive into some of its distinctions, including boardroom diversity, dual-class and multi-class share structures, staggered boards, majority voting, IPOs and other corporate governance matters including some specific distinctions with private venture-backed companies. If you like this show, please consider subscribing, leaving a review or sharing this podcast on social media. You can find all the show notes on the website boardroom-governance.com and please feel free to subscribe to the Boardroom Governance Newsletter at evanepstein.substack.com
- (1:35) - Start of interview.
- (2:22) - David's "origin story". He grew up as an "army brat" including living in Germany for about 10 years. He went to high school in West Point, NY. He stayed to go to college in Buffalo, where he also got his MBA. He left the Army and came to CA, where he ran IT for a company. He eventually went to law school first to Santa Clara, and then to UC Davis.
- (4:17) - His experience joining Fenwick in 1997, "in the front-end of the dot-com boom getting started." "I learnt a lot in the bubble years, and it was a tremendous advantage to my career to have done that early on."
- (5:32) - On the origin of Fenwick's Corporate Governance Surveys (published externally starting in 2007). "It was started to provide more than anecdotal advice to clients." The Mercury News published the SV150 List (a list of the largest Silicon Valley companies measured by revenue), and the idea was to compare and contrast that list with the S&P 100 (comprising 100 major blue chip companies across multiple industry groups.)
- (11:41) - On boardroom diversity: The percentage of women directors is now almost identical for the SV150 (30.3%, up from 25.7% in 2020) and S&P 100 (30.2%, up from 28.7% in 2020). On the impact of institutional investors in this change, SB-826 and AB-979 in CA, and the Nasdaq's diversity rule. "Silicon Valley had been behind in gender diversity. Institutional investor attention was the largest driver of increasing gender diversity on boardrooms."
- (16:15) - On dual-class share structures. The adoption of dual-class shares has emerged as a recent clear trend among Silicon Valley technology companies (from 2.9% in 2011 to 21.3% in 2021, as opposed to S&P 100 that where it decreased from 9% in 2011 to 8% in 2021). Per Prof. Jay Ritter data, 46.2% of all 2021 tech IPOs had dual class share structures.
- (23:05) - On the prevalence (and complexities) of dual-class share structures in private companies.
- (26:43) - On directors getting more than one vote ("disproportionate voting rights amongst directors"). Note DGCL 141(d).
- (29:17) - The Peloton case and how dual-class shares may impact shareholder activism.
- (31:46) - On sunset provisions for dual-class shares. "The Council of Institutional Investors' 7-year sunset provision is not convincing, 10-12 years is more convincing due to a variety of factors, including investments in R&D and traditional growth horizons."
- (35:11) - On staggered (or classified) boards: Over the period from 2004 through 2021 proxy seasons, staggered boards have dropped from around 45% to just 3% in S&P100, while they have increased to 52.1% in SV150 companies. "This is a perfect example of why 'best practices' are not equivalent ("there is no one-size-fits-all") in large cap and smaller cap companies." "This reflects the reality that one of the principal reasons for classification, as a takeover defense, is less compelling for some larger companies due to the sheer size of the companies and relative dispersion of their stockholdings."
- (39:54) - On majority voting. "The rate of implementation of some form of majority voting among S&P 100 companies has risen from 10% to 96% between the 2004 and 2021 proxy seasons. Among the technology and life sciences companies in the SV 150, the rate has risen from 0% as recently as the 2005 proxy season to 56.3% in the 2021 proxy season." "I don't see a lot of data that says that [majority voting] has much of an impact one way or another." "Zombie directors is a nice soundbite, but it's somewhat of an unfair pejorative."
- (45:09) - On the "stay private vs. go public" debate. "The relative success of companies that have gone public with dual-class share structures has informed the market of what is more or less acceptable." "There are a variety of choices that can be used to go public." "There is a lot of psychic, morale and social value in going public: it's still part of the dream in Silicon Valley to go public." "Liquid currency is a good thing too, particularly for growth via acquisitions." "I do expect this year 2022 to be a lower year for IPOs... the volatility is very high. See VIX index."
- (51:47) - David's favorite books:
- The Discoverers, by Daniel J Boorstin (1983) (and other books by same author)
- Wonderful Life, by Stephen Jay Gould (1989) (and other books by same author)
- To Kill a Mockingbird, by Harper Lee (1960)
- (52:25) - Who were your mentors, and what did you learn from them?
- Colleagues he's worked with over the years at F&W, including Gordy Davidson, Mark Stevens and Richard Dickson.
- Clients such as Tram Phi (GC at Docusign) Mike Dillon (longtime GC at Sun)
- (54:08) - An unusual habit or an absurd thing that he loves: The English Premier League (fan of Tottenham Hotspur F.C.)
- (56:00) - The living person he most admires? His parents, particularly his mother.
David A. Bell is partner at Fenwick and the co-chair of the firm's corporate governance practice.
You can follow Evan on social media at:
Music/Soundtrack (found via Free Music Archive): Seeing The Future by Dexter Britain is licensed under a Attribution-Noncommercial-Share Alike 3.0 United States License