Orrick Releases New Study on Corporate Governance in the Nation’s Energy Sector

September.12.2018

Corporate Governance | Energy SectorFollowing up on groundbreaking studies last year examining corporate governance structures in the tech sector, Orrick today released a new report detailing the corporate governance approaches of the leading public companies in the energy industry. Led by partner Ed Batts, the study broke down the boardroom structures of 54 companies in the Dow Jones Energy Sector Index and the S&P Energy Index, including recognized industry leaders such as Chevron, Cheniere Energy, Halliburton, First Solar Inc. and World Fuel Services Corp.

The study revealed certain contrasts with the tech sector, where more public companies have opted for dual class stock structures that can be more susceptible to investor activism. The study also identified a trend somewhat unique to the energy (and pharmaceutical) industries – a meaningful portion of companies are organized under laws outside the U.S., notably Switzerland, the U.K. and island nations such as Bermuda and Curacao.

Other key trends identified in the report include:

  • Proxy access is growing fast in the energy sector, as more than 60 percent of surveyed companies have adopted provisions which in general allow stockholders to nominate their own candidates in a director election rather than relying on the vetting of a company’s board-backed nominating committee.
  • A vast majority of energy companies (90 percent) have adopted majority voting provisions for uncontested director elections, even more than the tech sector’s 80 percent figure.
  • Delaware is fast-becoming the choice for public energy companies to organize and establish exclusive jurisdiction for class-action shareholder lawsuits. Nearly half of the companies surveyed have adopted these provisions for shareholder litigation, and most of them remain incorporated in Delaware.
  • Staggered boards remain surprisingly popular. Roughly 30 percent of energy companies have a staggered board, which in recent years has tended to be a feature of newer public companies rather than the type of established firms common in the energy industry.

This study is Orrick’s latest venture designed to provide the nation’s boards with a portrait of corporate governance practices evolving among public companies across sectors. Last year, Ed, global head of Orrick’s M&A team, led a study examining the corporate governance structures of every public company in the Dow Technology Sector Index, as well as another examination of the largest public companies in the tech-heavy San Francisco Bay Area.

“We developed important information for our tech clients who often asked us a fundamental question about corporate governance practices – ‘What do other companies do?’” Ed said. “We thought it made sense to do the same for our clients in the energy sector, one of the strategic pillars of our firm’s commitment to serving the tech, energy and infrastructure and finance sectors.”

Orrick has teams in offices around the world dedicated to representing the energy and infrastructure sector, including Chambers ranked lawyers in the U.S., France, Africa, U.K., Japan and Italy.

In addition to Ed, Sara Gates, an associate in Orrick’s Silicon Valley office, was instrumental in assembling the corporate governance study on the energy industry.

A summary of this report may be found on the Harvard Law School Forum on Corporate Governance and Financial Regulations blog here.

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