GOODWIN 7 Classified Board. One of the most potent anti-takeover device, directors on a classified board are typically divided into three classes, only one of which is elected each year. This means that even a super-majority of stockholders cannot replace a majority of the board in a single election season. Proponents of classified boards argue that this structure requires fundamental corporate or operational changes to be deliberate and thoroughly vetted rather than rushed through at the expense of long term value. Combined CEO and Chairman. While nearly half of all REITs believe the company’s chief executive officer is also best positioned to serve as chairman of the board, a slight majority of REITs have elected to separate those roles. Among those REITs that have not separated the roles, a large majority designate an independent director on the board as the “lead independent director” who, among other things, sets the agenda for and leads executive sessions of the independent directors. Stockholders are typically willing to support the combination of the chief executive officer and chairman roles where a lead independent director with sufficiently broad responsibilities has been selected. Insiders on Board (other than CEO). Some corporate governance watchers discourage populating a board with anyone other than independent directors. Others believe that adding insider voices to overall board discussion can be beneficial. Almost a third of all REITs have at least one insider on the board in addition to the CEO and investors have generally been supportive, particularly when they have confidence in the independent directors on the board to maintain the right course. Percentage of Women on Board. Diversity in the boardroom rightfully continues to be a focus across industries and sectors, including among public REITs. Outside Directors with 6+ Years Tenure. Board refreshment is likewise an important current focus in the world of corporate governance. Most commentators believe an optimal board is composed of a mix of directors with long-term company experience and new directors bringing a fresh perspective. As a point of reference, in 2017 the average tenure of boards of S&P 500 companies was 8.2 years, with 64% of S&P 500 companies having average tenures between six and ten years.5 Majority Voting and/or Director Resignation Policy. Majority voting generally means that a director nominee cannot be elected to the board unless a majority of votes cast are cast in favor of the nominee’s election. Under plurality voting, a nominee receiving a single FOR vote in an uncontested election is elected to the board, despite the fact that a majority of votes cast may have been cast AGAINST the nominee’s election. A director resignation policy (sometimes known as “plurality plus”) requires that a sitting director receiving less than a majority of FOR votes in an uncontested election tender his/her resignation to the board for its consideration. Current Shareholder Rights Plan. Less prevalent among public REITs, a shareholder rights plan (or “poison pill”) establishes a level of stock ownership (typically 10% or 15%) which a stockholder cannot exceed without incurring significant dilution to its holdings. As we have discussed in detail elsewhere,6 the organizational documents of almost all REITs already include a mechanism pursuant to which a stockholder whose actual and/or constructive share ownership surpasses stated ownership limits will have its shares automatically transferred to a trust and resold into the public market. Restriction on Shareholder Rights Plan. A minority of REITs have affirmatively adopted corporate policies or bylaws prohibiting the company from adopting a rights plan without stockholder approval (or imposing an automatic sunset on any plan adopted without stockholder approval that are not subsequently ratified by stockholders). Proxy Access (any formulation). Proxy access refers to provisions in a company’s bylaws that enable stockholders to use the company’s own proxy materials to nominate up to a specified number of director nominees. Supermajority Vote Required to Amend Charter. Important corporate governance changes that require an amendment of the company charter may be more difficult to effect if more than a simple majority vote is required. 5 2017 Spencer Stuart Board Index available at 6 See our REIT Alert “Waivers of Ownership Limitation Provisions in REIT Charters”, June 8, 2016. provisions.