Research Trends and Conclusions: Corporate Governance 2013

With the benefit of over 16 years of research and tens of thousands of votes from clients and private practitioners, Who’s Who Legal takes a closer look at developing trends in the corporate governance legal marketplace worldwide. The "hot topics" of the past year include say on pay and shareholder activism, proxy access, board declassification and board gender diversity. The legal market demand for top corporate governance lawyers remains high due to the continued focus on this area by shareholders and authorities.

Corporate governance has become increasingly important over the past few years due to regulatory and media scrutiny on this area following the global financial crisis (GFC) and many high-profile cases bought against BAE Systems, Barclays, BP, GlaxoSmithKline and Standard Chartered, among others. According to lawyers we spoke to, the attention of regulators, shareholders and directors has shifted in the past 10 years. Whereas in the early 2000s the focus was on accounting, as epitomised by the 2002 US Sarbanes-Oxley Act, which aimed at stopping companies from “cooking the books”, it is now risk that is the big issue. As one lawyer put it, “Corporate governance is a huge risk area. The key questions at the moment are whether companies have adequate risk controls and does executive compensation encourage risky behaviour”. Lawyers have commented on an increased demand for advice and understanding of risk management. Boards now face much greater scrutiny from all angles and, as one source explained, “Anytime anything bad happens now the focus is on the board – it is like governing in a fish bowl.” Furthermore, as one source explained, “Corporate governance is an area where the goalposts are always on the move and so there is always a need for advice.” With directors today much more attuned to their responsibilities and liabilities, top corporate governance lawyers are highly sought after by individuals and boards seeking counsel.

Say on Pay (SOP) and Shareholder Activism

How companies around the globe approach say on pay is a key corporate governance issue. In multiple jurisdictions there have been regulatory developments aimed at making boards more accountable and restoring investor and public confidence.

In the US, the Securities and Exchange Commission (SEC) adopted the final rules implementing the Dodd-Frank Act’s section 951 requirement in January 2011. This required SEC-registered issuers to provide shareholders, at least once every three years, with a separate non-binding SOP vote regarding the compensation of the company’s named executive officers and three other most highly compensated officers. Proxy season 2011 was the first year of SOP voting and the vast majority of companies received majority shareholder support for their SOP votes and most investors also supported annual voting. Following the 2012 proxy season, lawyers have highlighted two key trends that boards need to be aware of. Firstly, the importance of understanding and responding to the methodology of proxy advisers, notably Institutional Shareholder Services (ISS) and Glass Lewis, as their recommendations have a significant impact on the outcomes of SOP votes. Secondly, the importance of “direct and frequent communication” with shareholders and investment decision-makers. As one New York lawyer explained, “SOP is essentially about the dialogue the company has with its shareholders and the shareholder response is like a referendum, its not just about remuneration, its about how the shareholders feel about the company’s performance as a whole.”

Lawyers have suggested that over the past two years investor scrutiny has increased. Although the number of companies failing to receive majority support for SOP votes in 2012 remained low it was still, according to an ISS report, nearly a 50 per cent increase on 2011. Furthermore a lot of companies that received low-level support in 2012 had strong levels of support in 2011, indicating that they need to be attuned to changes in shareholders’ perception of company performance and compensation programmes. As one Washington, DC, source explained, “Shareholders expect transparency and engagement from companies and they will exercise their votes to address any discrepancy they see between executive compensation and performance – it is all about pay for performance now.” Key reasons for this increased activism are the GFC and media focus on remuneration. “People find it offensive if compensation is way out of line with performance,” adds the DC source, “and they feel the need to act.” For the majority of boards it is no longer really possible and certainly not profitable to go against the views of their shareholders. “Boards now work for shareholders, not the management.”

In the UK, directors’ pay has remained in the spotlight over the past year, with the government forging ahead with a tougher voting regime on pay policy and a more onerous disclosure regime. This is contained in the Enterprise and Regulatory Reform Bill, which is expected to be passed in October. It will make directors’ pay subject to a binding shareholder vote at least every three years, although a 50 per cent majority will be sufficient to pass the vote – much lower than the originally proposed threshold of up to 75 per cent. The proposal for a binding vote on termination payments ex post has been dropped, although directors’ exit payments must fall within the limits approved by the majority of shareholders and details of the directors’ termination payments must be disclosed immediately following departure. These revised proposals are “much more workable”, according to the lawyers we spoke to; however, in comparison to the US and much of Europe, these rules are considered “very tough” and many clients believe that “the government is encouraging shareholder activism”.

In the media there are continuous references to a 2012 “shareholder spring”, with suggestions that activism around SOP could cause more upsets in 2013. We received differing views about whether this was actually a reality. One lawyer felt that “activism has become mainstream” and so is a continuous issue the boards have to face and adjust to, while another suggested, “It is not that shareholders are more activist but that companies have to engage with them in order to get things done.” However, there have been several high-profile cases of non-binding SOP votes forcing directors to resign or take a cut in the past year – notably the August 2012 resignation of Andrew Moss, the chief of Aviva, following 54 per cent of shareholders voting against his pay package. According to our sources, a likely reason for the resignation was because the vote could be interpreted as being “not just against the compensation package but the way he was running the company”. This tallies with reports from the US that shareholders are using SOP as a referendum on the whole performance of the company. In theory the new proposals on binding shareholder voting should change the balance of power between the investors and boardrooms. Undoubtedly over the past few years there has been a move in this direction; however, whether the balance of power will actually shift remains to be seen, though as one lawyer stated, “Boards cannot forget anymore that it is the shareholders that own the company.”

On a European level the Commission announced an action plan in December 2012, following several green papers on corporate governance. In this the Commission stated its belief that “companies could benefit from remuneration policies which stimulate longer-term value creation and genuinely link pay to performances”. It called for basic harmonisation of disclosure requirements so as to provide shareholders with clear information on remuneration policies and for shareholders to be able to express their views through a mandatory shareholder vote of the companies’ remuneration policy and remuneration report. The UK and several other countries within Europe have been moving in the same direction regulatory-wise as the EU. As a result, according to one London lawyer, “There will not be much impact from such EU decisions as our clients are already addressing the key issues raised.” As of this time, the Commission is working on legislation that will be applicable across all 27 member countries.

Switzerland has been making headlines recently over its decisions on executive pay. As The Wall Street Journal proclaimed, “When even Switzerland turns against high executive pay, you know there is a problem.” In early March, 68 per cent of voters backed a referendum that means shareholders will soon be required to approve the pay of executives and board members of public companies. The new rules do not seek limited pay beyond banning “golden handshakes” and “parachutes”, but as one practitioner put it, “The amount will be up to the shareholders and investors; it is in their hands and so in all likelihood it will be closely aligned with performance.” How the adoption of the world’s strictest SOP regime will impact economically on Switzerland – home to many major multinational companies – will no doubt be watched carefully by governments, regulatory bodies and boards around the world. However, as one Zurich lawyer reminded us, “Our top income tax rate is still only 13.4 per cent so we are not expecting companies to flee the country.”

SOP will remain an important topic for the foreseeable future and greater shareholder engagement is here to stay and may even increase given the desire of the EU and many governments to increase shareholder involvement. One Dutch lawyer, whose country has had binding voting since 2004, summed up the key lesson from SOP voting as: “It is better for the boards to listen beforehand than to lose a vote after.” Overall shareholders have much greater rights and are much more vocal than a decade ago, when activism was a “dirty word” and issues were addressed behind closed doors. Times have changed and the balance of power is supposedly shifting; however, those boards that adapt to this and communicate with their shareholders will continue to thrive.

SOP Litigation

A big trend to come out of US has been the significant increase in SOP litigation. As one individual explained, “10 years ago you never saw litigation in relation to executive pay whereas now you see a lot, including shareholder class actions.” The first wave of SOP lawsuits came in the wake of 2011 proxy season. Companies that received negative advisory votes were targeted by plaintiffs and derivative suits were filed, claiming that directors breached their fiduciary duties in approving pay raises and bonuses to executives notwithstanding the vote. Although these suits were almost uniformly dismissed, they started the trend for litigation in relation to SOP. This year plaintiffs began filing class action lawsuits before the shareholder vote challenging the adequacy of proxy disclosures on executive compensation and equity plans and are trying to enjoin the votes until the company makes additional disclosures. Most of these cases are subject to Delaware law because the companies are incorporated there; one local lawyer we spoke to claimed that “50 per cent of law suits in the state relate to corporate governance issues”. However, we have also heard reports of cases being filed in other states, including New York and California, with some suggesting that “plaintiffs are starting to actively avoid Delaware”, leading to greater uncertainty for clients.

So far there have been “mixed results”, with both plaintiffs and defendants having some success. Notable recent defendant successes where preliminary injunction motions have been defeated include actions involving Symantec, Microsoft and the Clorox Company. Overall defendants have so far been more successful than plaintiffs, although some choose to settle prior to any hearings. Lawyers we spoke to indicated that any company with a shareholder vote this year has the potential to be a target, so all clients need to be prepared to defend their disclosures. One individual stated, “At a minimum companies have to pay scrupulous attention to compliance with SEC disclosure requirements applicable to proxy statements and ensure that they fully satisfy them all – but then they should be doing this anyway.” As there is no particular pattern as to which companies are targeted and every one is fair game, there is no blueprint that a company can follow to avoid being named in such a suit. Clients and lawyers, both in the US and elsewhere, are watching with interest, specifically as to what the plaintiff allegations are and what the outcome is. However, as one lawyer explained, “The big issue is not so much the verdict but the fact that these suits are happening and are making everything more complex and everyone is vulnerable. What is frustrating for the client is that, regardless of how well prepared you are, it could still happen to you.” Given the way SOP litigation has evolved from 2011 to 2013, and the tenacity of the US plaintiffs bar, it will remain an important trend of which lawyers must stay abreast for the foreseeable future.

Proxy Access, Board Declassification and Accountability of Boards

Proxy access has remained a “hot topic” over the past year, with one lawyer calling it the “most prominent issue of the 2012 proxy season”. Despite setbacks with its comprehensive proxy access rule, the SEC announced in September 2011 that its proposed amendments to Rule 14a-8, “private ordering” proxy access, would come into affect for the 2012 proxy season. As the SEC chairperson at that time, Mary Schapiro, explained, “Eligible shareholders are permitted to require companies to include shareholder proposals regarding proxy access procedures in company proxy materials. Through this procedure, shareholders and companies have the opportunity to establish proxy access standards on a company-by-company basis.” According to an article in Agenda, investors filed 25 proxy access proposals last year stipulating several different ownership thresholds required to nominate board candidates. Ten of the proposals went to a vote, with the majority of those that did not being excluded by the SEC for technical reasons, and only two at Nabors and Chesapeake Energy passed. Both companies recently had issues with their shareholders. Nabors failed an SOP vote in 2011 and Chesapeake has a well-documented history of governance issues. This suggests, as several lawyers pointed out, that proxy access is about the much deeper issue of whether companies are being responsive to and engaging with shareholders. However, Amy Borrus, deputy director of the council of institutional investors, described it as a “watershed moment” and a “signal to corporate America that proxy access is now part of the governance landscape”. Several other companies were forced to compromise, most notably Hewlett-Packard, but in other instances shareholders refused to negotiate on the issue. Most lawyers we spoke to indicated that most companies need not worry unless they have a catalogue of serious corporate governance issues. However, what is clear is that proxy access is part of the trend of increased shareholder activism and a “definite sign of the end of the era of shareholder deference”.

Board declassification is another key theme of previous proxy seasons that has continued into 2013. As of March 2013, six board declassification proposals have already been passed, receiving on average 79 per cent of the votes cast. According to the Harvard Law School forum on corporate governance and financial regulation, there are 74 proposals being submitted this season by the Shareholders Rights Project (SRP) on behalf of investors and in 2012 the SRP reported 42 board declassifications of S&P 500 companies. In the words of one lawyer: “Classified boards could become a rare species.” Like with other shareholders proposals, they are non-binding but given the strong support of many shareholders to declassify boards such votes undoubtedly have an impact. There is some concern from clients who believe that classified boards are better at protecting a company’s long-term interests and making it much less vulnerable to hostile takeovers. As one practitioner explained: “Only after winning a majority of board seats in two separate elections can an acquirer rescind a company’s shareholder rights plan, approve a merger, sell key assets or replace management.” Interestingly, companies undertaking initial public offerings are overwhelmingly choosing to go public with staggered boards, most notably Facebook, Groupon and LinkedIn. According to The New York Times, in 2012 86.4 per cent of companies going public chose this model, up from 64.5 per cent in 2011. This reinforces the fact that board declassification is a contentious issue within the corporate governance field – and that this is unlikely to change.

The other important US trend is the increasing independence of board leadership as a result of investor impact. Despite many corporate governance similarities between the US and UK when it comes to the relationship between the chairman of the board and chief executive there are significant differences. Since the 1991 Cadbury Report, listed companies in the UK have adopted the approach of separating the role of CEO and chairman and it is also common for the chairman to be an independent director. In other European countries, notably Germany and the Netherlands, it is a regulatory requirement that the positions are split. In the US both separation of the roles and the independence of the chair is much less usual, although over the past few years it has become an increasingly important issue for shareholders and regulators and this has had a knock-on effect on board structure. According to a report by Deloitte, 77 per cent of S&P 500 companies had combined CEO/chairmen in 2003, but by 2011 this had dropped to 59 per cent. Furthermore, 21 per cent of S&P 500 companies now have independent non-executive chairmen, compared to only nine per cent in 2004. Although this shift has been occurring over the past decade, lawyers we spoke to claimed that of late this has become a “hotter” topic as a result of the GFC and the focus on improving board accountability. It was one of the top shareholder proposals of proxy season 2012 and has remained so for 2013, with several high-profile examples already – notably Goldman Sachs. However, not all board leadership is as independent as the statistics suggest, as electing the former CEO as chair or appointing a “lead director” are considered popular alternative models. Despite this, it is clear that board independence is increasingly being promoted by investors, proxy advisers and even some directors, as a tool to improve corporate accountability and performance and minimise risk. Clients are advised to be prepared to explain and justify to shareholders why they have adopted a particular model; as one lawyer stated, “You can no longer talk about the combined CEO/chair model as overwhelmingly being the model of choice in the US.”

Board Gender Diversity

In November 2012 the European Commission proposed legislation with the goal of attaining a 40 per cent objective of women in non-executive board member positions in publicly listed companies, with the exception of small and medium enterprises, by 2020. According to the Commission, at present roughly 85 per cent of non-executive board members and 91 per cent of executive board members are men, and the proposal aims to “take action to break the glass ceiling that continues to bar female talent from top positions in Europe’s biggest companies”. Many of the English lawyers we spoke to felt that 40 per cent was “unrealistically high” and believed that 30 per cent was much more likely. As one lawyer put it, “It is not a conceptual problem, but are there enough good female directors to go around? You could end up with women getting multiple directorships – and would this actually benefit boards if they have to spread themselves very thin?” As another source suggested, the key issue is that women need to start coming through on the management side. “You could make changes at a board level, but if there is not a good pool of women coming up then the whole concept is not sustainable and conducive to good governance. Diversity below board level needs to be addressed.” Many clients believe the Commission has gone too far by issuing a uniform high quota, especially when in recent years many UK-based companies have made significant headway on this issue. The draft directive has yet to be approved by member states and although the British government has stated that firms should aim to have at least one female director for every three men by 2015, no specific target has been set.

Elsewhere in the world similar regulations are either in the pipeline or have come into the force, with Norway being the first country to introduce board gender quotas in 2003. In December 2012 Sheikh Mohammed bin Rashid Al Maktoum, ruler of Dubai and prime minister and vice president of the United Arab Emirates, announced that it would be compulsory for companies and government agencies to appoint women to their boards. In 2011 the Malaysian government stated that from 2016 women must have 30 per cent representation in decision-making positions. In addition, Italy, France, Spain, Belgium and Iceland all have quotas for the number of women on boards. In regards to some jurisdictions the US is considered to “lag behind” on this issue, with no proposals or quotas in the pipeline. However, in 2012 female directors made up 16.6 per cent of boards of Fortune 500 companies, according to the 2012 Catalyst Census; this is still a greater proportion than the UK (where 15.6 per cent of FTSE 100 companies have women directorships) as well as France and Italy, both of which have quotas.

Perhaps as a result of the GFC, the issue of women on boards has become not just about equality but also about productivity and good governance. A 2012 Credit Suisse report claimed the presence of female leaders is a viable indicator of a company’s investment potential, as it showed that it is “better to have invested in corporates with women on their management boards than in those without”. Ultimately the issue of gender diversity is about the wider issue of board diversity and whether it leads to better board decisions. Currently there seems to be a lack of middle ground on this issue, with countries either taking a hard line or having no proposals or regulations at all.

The Legal Market

Unsurprisingly, given the continued focus on corporate governance and its increasing complexity, the number of lawyers in our research has increased over the past three years, as has the number of new lawyers per edition, as indicated in chart one. This year we feature 506 lawyers in our research from 265 different firms, 103 of whom are new to the guide.


With regards to the top firms, “the best are keeping busy” and this is evidenced in our research with six of the top firms from last year’s edition being selected as leading firms this year. Wachtell Lipton Rosen & Katz once again leads our research with 12 lawyers featured, the same number as our previous two editions; similarly, Freshfields Bruckhaus Deringer LLP boasts 10 listings for the third consecutive year. Skadden Arps Slate Meagher & Flom LLP and Slaughter and May both have two more lawyers recognised this year, and for the first time Simpson Thacher & Bartlett LLP makes our most highly regarded firms list. It has significantly increased its presence in this sector over the past year, with eight of its lawyers featured – up from five in our previous two editions. The other newcomer is Herbert Smith Freehills LLP, which fields seven lawyers to this edition, demonstrating that the merger of UK-based Herbert Smith and Australian firm Freehills has strengthened the firm’s presence in the legal market.

As shown in chart two, North America and Europe are the regions most strongly represented in this edition, as they have been for the past three years. Both have increased the number of lawyers in this publication year-on-year, although European lawyers have done so at a greater rate. North American lawyers now outnumber European lawyers by the relatively slim margin of six; if this trend continues, then within the next couple of years North American lawyers will be entirely outnumbered by European lawyers. A reason for this trend is the EU and country-level focus on governance. The number of lawyers from the Asia-Pacific, Middle East and Africa regions has also increased, corroborating reports of a new focus on governance issues in these areas, particularly board diversity and independence.


Corporate governance is not a stand-alone practice area. Extensive corporate experience and expertise are considered vital tools for lawyers specialising in this field. Looking at the top 100 lawyers in our research, we can identify the practice area sectors that have the greatest crossover with corporate governance. Chart three overwhelming shows that the majority of lawyers recognised in the governance field are also top M&A lawyers. As one lawyer explained, “Being an M&A lawyer means you look after publicly traded companies and develop the necessary skills and knowledge to advise clients on governance, if you spend enough time doing it.” Furthermore, it is not really practical for firms to have lawyers only doing governance work as, according to sources, it “doesn’t make much money for the firm” and “is so tied up with corporate work and long-term client relationships that it would not make sense to have a separate practice”. Top lawyers in our banking, capital markets and commercial litigation publications are also recognised as leading governance lawyers.


Demand for corporate governance lawyers is high as a result of regulatory developments and increased shareholder activism. The GFC has undoubtedly had a significant bearing on this sector and boards are now engaging with shareholders and having to consider their demands alongside long-term goals for their companies. This area has become much more complex; chairs, CEOs and boards now consider first-class legal advice to be vital in navigating this changeable and often difficult environment.

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Nominees have been selected based upon comprehensive, independent survey work with both general counsel and private practice lawyers worldwide. Only specialists who have met independent international research criteria are listed.

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