In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, reviews a recent law firm survey of IPO Governance trends and considers the D&O liability exposure implications. I would like to thank Sarah for allowing me to publish her article on this site.
A newly published Cooley 2025 Post-IPO Governance Trends report (Cooley report) offers a comprehensive look at how various companies that went public between 2017 and 2021 made board and governance decisions in the wake of an IPO boom. While D&O Diary readers may be aware that, during this timeframe, certainly 2019 and 2020, there was a surge in SPACs, Cooley excluded SPACs from its report. The Cooley report focused on companies operating in the life sciences, software, services, industrials, and retail industries, and may further provide insight into D&O exposures stemming from governance decisions ahead of an IPO. The following discusses certain takeaways.
Governance Protections and Investor Expectations
The Cooley report indicates that many of the newly public companies studied created classified boards, supermajority voting provisions, and multi-class capital structures. At the time of IPO, 88% of the companies Cooley surveyed adopted classified boards, and more than 90% adopted supermajority voting provisions. Multi-class structures, while industry-specific, were especially common among software and VC-backed issuers.
Notably, the decision to create classified boards indicated future shareholder tension, at least with respect to Proxy voting. The report notes that 99% of all active IPO Companies have received at least one negative institutional Shareholder Services (ISS) recommendation that shareholders vote against at least one of the company’s director nominees; ISS expressly states that its standing policy is to recommend shareholders vote “Against” or “Withhold” for directors at companies that maintain governance structures ISS considers shareholder-unfriendly.
Negative recommendations can exert influence in the earliest post-IPO years, particularly with a concentrated founder, insider, or sponsor owner, ownership disperses, and performance volatility brings governance into sharper focus. In addition, to the extent that the recommendation leads to heightened scrutiny over directors, there may be an increase in books and records demands or similar requests relative to board governance and strategy.
Attrition Within the IPO Cohort
The Cooley report further observed that approximately 24% of the companies in the cohort are no longer public, primarily due to acquisitions or going-private transactions.
Although some of this attrition may reflect natural industry consolidation or sponsor-driven exits, it also highlights destabilizing pressures that can emerge before young public companies’ governance structures have fully matured. Newly public companies may encounter strategic, operational, or shareholder pressures before their boards have evolved into the more independent, experienced, and disciplined governance bodies typical of mature public companies. This may lead to increased D&O risks.
Distressed or time-pressured deals may generate allegations that the board failed to conduct a proper sale process, overlooked conflicts of interest, or inadequately evaluated alternatives. Reverse mergers, which often involve complex capital structures and valuation disparities, can trigger claims that investors were not provided full or accurate disclosure. And take-private transactions directed by sponsors or founders may give rise to assertions that insiders extracted value at the expense of minority shareholders.
Distressed M&A, reverse mergers, or sponsor-influenced take-private transactions may result in merger-related litigation, process-based fiduciary duty challenges, and allegations of insufficient or misleading disclosures. The attrition rate, therefore, may indicate how governance decisions may impact D&O exposure as newly public companies mature.
Board Evolution, Turnover, and Persistent Questions of Independence
Cooley also analyzed board evolution. Although board sizes grew only modestly after IPO, turnover was significant, with only 65% of IPO-era directors still serving today. Perhaps board refreshment reflects a shift toward greater independence as companies mature. Yet the data shows that companies that initially went public with insider-heavy boards tended to add more directors over time, without necessarily replacing insiders. At IPO, nearly 70% of companies included multiple non-independent directors, and these companies added an average of 3.7 new directors post-IPO, more than companies with more independent profiles at listing.
This dynamic may carry important implications for D&O risk. In litigation challenging oversight or conflicts of interest, shareholder plaintiffs may focus on the independence and composition of the board, particularly when insiders occupy key seats or when founders retain meaningful power through high-vote shares. As the report notes, while investor-affiliated directors decline as ownership levels fall, founder influence often persists much longer. The combination of high turnover and persistent insider presence sets the stage for allegations of entrenchment, insufficient board oversight, or delayed responsiveness to material risks.
Shareholder Rights: Gap Between Newly Public Companies and Mature-Market Norms
Across nearly all categories of shareholder rights, the Cooley report tends to indicate that newly public companies are less aligned with more mature company governance norms. Only a small minority of companies declassified their boards (10%), removed supermajority voting provisions (7%), or eliminated multi-class structures (12%) in the years following listing. 4% percent added special meeting rights for shareholders.
In contrast to the Russell 3000 and S&P 500, where majority voting standards, special meeting rights, and annual director elections tend to be standard practice.
For D&O underwriters, the persistence of these protections may lead to exposure stemming from potential activist campaigns, contested director elections, shareholder proposals targeting structural entrenchment, and, in some cases, derivative litigation alleging board inaction in the face of clear investor pressure. The Cooley report notes that although newly public companies rarely receive shareholder proposals in their first several years, the proposals that do appear, particularly on declassification and supermajority elimination, tend to receive overwhelming support. Such proposals tend to pass with average support of 80% or more, indicating that once these issues surface, boards face substantial pressure to act.
Proxy Advisor Influence and the Escalation of Voting Pressure
The report’s findings on proxy advisor influence provide additional context for understanding D&O exposure during the post-IPO period. Newly public companies are subject to near-universal negative ISS recommendations tied to governance structures adopted at IPO. Although these recommendations may initially have muted voting impact due to concentrated ownership, this protection erodes over time. As the shareholder base expands and company performance becomes more variable, negative proxy recommendations may increase the likelihood of shareholder challenges.
The report also notes that say-on-pay results among Active IPO Companies reflect similar patterns. Approximately 25% experienced at least one say-on-pay vote below 80% support. Weak support on compensation matters could signal investor dissatisfaction and may lead to shareholder inquiries surrounding executive pay, performance alignment, or compensation committee oversight.
Conclusion
The Cooley report provides an interesting empirical overview of governance trends during a surge of IPOs and possible governance stress points that may shape D&O risk as this cohort of companies mature.
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