Paul Hastings Study of JOBS Act Era IPOs Reveals Few Companies Embrace Full JOBS Act Perks

October 15, 2014

Report Explores Emerging Growth Companies’ Corporate Governance Challenges and Trends

Palo Alto, CA – In the two years since the JOBS Act was signed into law, the annual number of U.S. initial public offerings (IPOs) has reached its highest level since 2007, but few of these companies are seizing all of the benefits that the JOBS Act offers Emerging Growth Companies, according to IPOs in the JOBS Act Era 2014, a report published by leading global law firm Paul Hastings LLP. Surprisingly, less than 5% percent of surveyed issuers embraced all of the disclosure and compliance accommodations of the legislation. Companies are also not leveraging some of the Act’s more attractive options. For instance, an astounding 86% of surveyed IPO companies irrevocably elected not to opt for money-saving “phase in” rules for new or revised financial accounting standards.

The study examines the corporate governance practices and disclosures of 100 U.S.-based Emerging Growth Companies in the technology and life sciences industry that completed an IPO between September 2012 and August 2014. The report provides insight into how investor pressures are impacting the decisions made by Emerging Growth Companies in the application of the JOBS Act provisions and corporate governance processes.

“We’ve worked with issuers and underwriters in technology and life sciences IPOs to help them navigate the JOBS Act and capitalize on critical opportunities provided through the legislation and this report builds on that experience and will help companies structure transactions with an eye toward the demands and preferences of institutional investors,” said Jeff Hartlin, author of the report and a Securities & Capital Markets partner at Paul Hastings. “We were surprised at how quickly companies adopted certain provisions, but how slow they have been to embrace the full benefits of the Act – in many cases foregoing provisions that would potentially save these companies significant time and money,” he added.

Other key findings of the study include:

Most of the surveyed issuers adopted a classified board of directors, plurality voting in director elections, and supermajority voting requirements to amend or eliminate defense measures in the issuers’ governing documents, demonstrating that even though public companies are under significant attack by a number of institutional investors and proxy advisory groups to eliminate a number of defense measures, IPO companies are still adopting these measures in significant numbers.
60% percent of surveyed issuers chose to separate the roles of CEO and Chairperson, reflecting an emerging trend against the traditional format for many U.S. corporations.
Only 46% of the surveyed issuers elected to take advantage of the opportunity to provide two years of audited financials, which could decrease an issuer’s risk profile, rather than three years.
Evergreen (i.e., share replenishment) provisions remain common in equity plans adopted in connection with IPOs despite pressure from proxy advisor firms and certain institutional investors to eliminate these features.
After a drop in popularity over the past decade following a change in accounting rules, employee stock purchase plans have reemerged among IPO issuers.
65% of issuers adopted a forum selection clause for the resolution of specified disputes such as allegations of breaches of fiduciary duties. These clauses force stockholders to bring certain lawsuits against the company and its insiders in a pre-specified forum, which is designed to save issuers from the time and expense of defending similar actions in multiple jurisdictions.

Paul Hastings Capital Markets practice advises on technology and life sciences offerings for Fortune 500 and Emerging Growth Companies, as well as underwriters. The firm has advised on IPOs and public offerings for Samsung Electronics, Materialise, voxeljet, CHC Group, BioMarin Pharmaceutical Inc., Fox Factory Holding Corp. and Masimo Corporation.

The practice has also been involved in some of the most complex and landmark international capital markets transactions in the past year on both the underwriter and issuer side. The firm advised on the first Belgian IPO in the US in ten years; the first Mexican FIBRA to issue debt in the international capital markets; the largest IPO in Latin America last year; the third German company in a decade to execute a US IPO; and is the only international law firm in Asia to be involved in all of the Hong Kong B to H-share projects launched in the market to date.

Paul Hastings is a leading global law firm with a strong presence throughout Asia, Europe, Latin America and the United States. Through a collaborative approach, entrepreneurial spirit, and commitment to client service, the professionals of Paul Hastings deliver innovative solutions to many of the world’s top financial institutions and Fortune 500 companies.