EY Center for Board Matters

1 EY Center for Board MattersFor more articles like this, please visit 2016 Corporate governance is a topic of increasing interest to policymakers, investors and other stakeholders seeking greater transparency of Board practices and oversight functions, enhanced director accountability and improved Board effectiveness. However, governance practices vary widely. And while the governance practices of companies with the highest market capitalization such as those in the S&P 500 can serve as important indicators of emerging practices, less is known about governance trends at Russell 2000 companies. To share insights about an area of limited study, the EY Center for Board Matters analyzed the corporate governance practices Yl Jmkk]dd *((( jek \mjaf_ l`] ^gmj%q]Yj h]jag\ ^jge *()* lg *()-& Lg Y\\ h]jkh][lan] Yf\ [gfl]pl$ [gjj]khgf\af_ \YlY from the S&P 500 was included in the analysis.)))

2 The study found continued differences between Russell 2000 Yf\ K H -(( _gn]jfYf[] hjY[la[]k& >gj ]pYehd]$ Jmkk]dd 2000 boards tend to have more independent Board chairs, are smaller and have fewer women and other insights about the governance practices of Russell 2000 and S&P 500 companies can help directors and management of entities of all sizes benchmark their governance practices, identify areas for potential review and spotlight opportunities to enhance boardroom trends at Russell 2000 companiesGf] kar] \g]kf l l Ydd o`]f al comes to governance practices. O`ad] ZgYj\k Yf\ eYfY_]e]fl k`gmd\ Z] YoYj] g^ ]e]j_af_ governance practices, at l`] kYe] lae]$ l`]q f]]\ lg [gfka\]j Y [gehYfq k particular circumstances.))

3 C]q f\af_kBoards smaller, younger and less diverse: Board size has remained steady with Russell 2000 boards averaging 8 \aj][lgjk$ [gehYj]\ oal` )) ^gj K H -(( ZgYj\k& L`] Yn]jY_] age and tenure of directors remained similar for the S&P 500, Zml Jmkk]dd *((( _mj]k k`go]\ Y kda_`l \][daf]$ km__]klaf_ perhaps more refreshment. Although gender diversity grew slightly in Russell 2000 boards, 36% of these boards continue to be all male, compared with 3% of S&P 500 reshaping their independent Board leadership structures: Boards increasingly appointed independent Board chairs or lead directors, and diminished use of presiding \aj][lgjk& ;mjj]fldq$ 0* g^ Jmkk]dd *((( jek `Yn] kge] ^gje of independent Board leadership, compared with 95% of the K H -(( jek& Jmkk]dd *((( [gehYfa]k Yj] egj] dac]dq lg `Yn] an independent Board chair, while S&P 500 boards likely have an independent lead elections continuing to gradually transform: Companies have continued to move from staggered to annual elections and replaced plurality voting with majority voting requirements for director elections (versus plurality voting).)))))))))))

4 A narrow majority of Russell 2000 companies (55%) hold YffmYd ]d][lagfk$ mh ^jge -) af *()*& Af [gehYjakgf$ 1) of S&P 500 companies have moved to this standard. Majority voting requirements are currently required for 26% of director ]d][lagfk Yl Jmkk]dd *((( [gehYfa]k$ mh ^jge )1 af *()*& Af comparison, 88% of S&P 500 boards have majority and executive compensation generally has increased: Total compensation for Russell 2000 CEOs increased more jYha\dq l`Yf Yl l`] K H -(( [gehYfa]k& L`] Yn]jY_] ;=G%lg%fYe]\%]p][mlan]%g^ []j F=G! hYq jYlag ak fgo kaeadYj Y[jgkk Russell 2000 and S&P 500 companies at around support of Russell 2000 boards grows, but when there is opposition, it may be higher: Support levels for director nominees has grown, but investor opposition votes continue to be higher for Russell 2000 nominees, at , [gehYj]\ oal` *&/ ^gj l`] K H -((& 9n]jY_] kmhhgjl ^gj kYq%gf%hYq KGH!))))

5 HjghgkYdk `Yk j]eYaf]\ `a_` Yl 1) ^gj Jmkk]dd 2000 companies about the same as the 92% average support for the S&P 500. Average support for shareholder proposals has declined but shareholder proposals submitted to Russell 2000 companies continue to average higher levels of voting kmhhgjl Yl ,* $ [gehYj]\ oal` +) ^gj K H -(( [gehYfa]k&For more articles like this, please visit 2016 Governance trends at Russell 2000 companiesLooking for more details?=phdgj] gmj YfYdqkak af \]lYad Zq nakalaf_ , o`]j] qgm [Yf f\ klYlakla[k YZgml ZgYj\ Yf\ c]q [geeall]] composition, leadership structures, compensation and more. ;gehYjakgf g^ Jmkk]dd *((( Yf\ K H -(( ZgYj\kKey differences in governanceRussell 2000S&P 500 Board directors (% of Board ))* 20%Af\]h]f\]fl \aj][lgjk g^ ZgYj\!))))

6 78%85% Board tenure Board service (number of public boards served))&.*&):gYj\ Yf\ c]q [geeall]] e]]laf_k Yf\ kar]Frequency of Board meetings (average meetings per year) )(&0 Frequency of key committee meetings (average meetings per year)Audit: : +&+Audit: : ,&.Committee sizeAudit: : +&-Audit: ;geh]fkYlagf2 ,&)FgeafYlaf_2 ,&*Af\]h]f\]fl ZgYj\ d]Y\]jk`ah g^ [gehYfa]k!Percent of companies with independent leadership82%95%Most prevalent independent leadership structureBoard chairLead director<aj][lgj ]d][lagfk g^ [gehYfa]k!Annual elections for all directors55%1) Majority voting requirements in director elections26%88%Hjgpq Y[[]kk ]klgj na]okAverage opposition votes against director of all director nominees receiving >20% )&1 Proportion of companies with shareholder proposals voted on3%47%Proportion of total number of shareholder proposals voted on)( 76%Average voting support for all shareholder proposals42%+) Questions for the Board to consider Ak l`] ^j]im]f[q g^ c]q [geeall]] e]]laf_k km^ [a]fl ^gj Y\\j]kkaf_ Zgl` aee]\aYl] [gehYfq f]]\k and broader, long-term strategic interests?

7 @go \g]k l`] Y_]$ l]fmj]$ \an]jkalq Yf\ kcadd k]lk g^ ZgYj\ e]eZ]jk [gehYj] oal` h]]jk Yf\ l`] [`Yf_af_ _gn]jfYf[] ]ph][lYlagfk g^ afn]klgjk7 9j] Yfq g^ l`]k] [`YjY[l]jakla[k dac]dq lg _]f]jYl] [dgk]j afn]klgj k[jmlafq7 @go \g]k l`] [gehYfq k ZgYj\ hYq d]n]d Yf\ l`] afl]jfYd hYq jYlag Z]lo]]f l`] ;=G Yf\ gl`]j fYe]\ ]p][mlan] g^ []jk [gehYj] oal` h]]jk7 @go \g l`] [gehYfq k _gn]jfYf[] hjY[la[]k Yda_f oal` evolving investor expectations about annual elections, eYbgjalq nglaf_ j]imaj]e]flk Yf\ hjgpq Y[[]kk7 Ak l`] ZgYj\ ^YeadaYj oal` Yf\ \g]k l`] ZgYj\ `Yn] Y na]o YZgml l`] lgh k`Yj]`gd\]j hjghgkYd lgha[k g^ afl]j]kl lg l`] ZjgY\ ZYk] g^ afn]klgjk7EY | 9kkmjYf[] t LYp t LjYfkY[lagfk t 9\nakgjq9 Zgml =Q =Q ak Y _dgZYd d]Y\]j af YkkmjYf[]$ lYp$ ljYfkY[lagf Yf\ Y\nakgjq k]jna[]k& L`] afka_`lk Yf\ imYdalq k]jna[]k o] \]dan]j `]dh Zmad\ ljmkl Yf\ [gf \]f[] af the capital markets and in economies the world over.

8 We develop outstanding d]Y\]jk o`g l]Ye lg \]dan]j gf gmj hjgeak]k lg Ydd g^ gmj klYc]`gd\]jk& Af kg doing, we play a critical role in building a better working world for our people, for our clients and for our refers to the global organization, and may refer to one or more, of the e]eZ]j jek g^ =jfkl Qgmf_ ?dgZYd Daeal]\$ ]Y[` g^ o`a[` ak Y k]hYjYl] d]_Yd ]flalq& =jfkl Qgmf_ ?dgZYd Daeal]\$ Y MC [gehYfq daeal]\ Zq guarantee, does not provide services to clients. For more information about our organization, please visit Qgmf_ DDH ak Y [da]fl%k]jnaf_ e]eZ]j je g^ =jfkl Qgmf_ ?dgZYd Daeal]\ gh]jYlaf_ af l`] MK&9 Zgml l`] =Q ;]fl]j ^gj :gYj\ EYll]jk Effective corporate governance is an important element in building a better working world.

9 The EY Center for Board Matters is committed to bringing together and engaging with boards, audit committee members Yf\ afn]klgjk lg ]p[`Yf_] a\]Yk Yf\ afka_`lk& Mkaf_ gmj hjg^]kkagfYd competencies, relationships and proprietary corporate governance database, we are able to identify trends and emerging governance issues. This allows us lg \]dan]j lae]dq Yf\ ZYdYf[]\ afka_`lk$ \YlY%ja[` [gfl]fl$ Yf\ hjY[la[Yd lggdk and analysis to boards, audit committees, institutional investors and others interested in governance topics. *(). =jfkl Qgmf_ DDH& All Rights ;GJ= fg& (+).0%).)MK ;K? fg& ).(1%*(-.*)-This material has been prepared for general informational purposes only Yf\ ak fgl afl]f\]\ lg Z] j]da]\ mhgf Yk Y[[gmflaf_$ lYp gj gl`]j hjg^]kkagfYd Y\na[]& Hd]Yk] j]^]j lg qgmj Y\nakgjk ^gj kh][a [ Y\na[]&