Large-Cap Lessons: Solventum's S&P 500 Corporate Governance Win
Key Corporate Governance Lessons from Solventum's Addition to the S&P 500
Is large-cap the same as S&P 500?
No, large-cap and S&P 500 are related but not identical:
Large-Cap vs. S&P 500
- Large-cap refers to companies with market capitalization over $10 billion
- S&P 500 is a specific index of 500 large U.S. publicly traded companies
- All S&P 500 companies are large-cap, but not all large-cap companies are in the S&P 500
- S&P 500 selection involves additional criteria beyond market size (liquidity, industry representation, financial viability)
Solventum’s Journey:
Spin-Off: Solventum was spun off from 3M, establishing itself as a standalone healthcare entity.
Financials: Solventum boasts a market cap of $12.68 billion. Despite initial success, recent stock performance has posed challenges.
Positive Earnings: The company reported GAAP EPS of $0.51 and adjusted EPS of $1.56 for Q2 2024, and GAAP EPS of $0.70 and adjusted EPS of $1.64 for Q3 2024, reflecting solid financial health.
Fast-Tracked Inclusion: Solventum’s rapid inclusion in the S&P 500 was due to its active participation in multiple investor shows and significant corporate governance improvements.
Board Composition: Nearly 70% of Solventum’s board members have healthcare backgrounds, providing industry-specific insights. The board’s push for gender parity among the 12 members underscores its commitment to diversity and inclusion.
Stock Performance: Although Solventum initially met the market cap requirement, a significant price drop from $96.05 to $74.79 (approximately 22%) has raised concerns about maintaining its position in the S&P 500.
Minimum Requirements for S&P 500 Inclusion:
To be included in the S&P 500, companies must meet the following criteria:
Market Capitalization: A minimum market cap of $14.5 billion.
Liquidity: At least 50% of outstanding shares must be available for public trading.
Financial Viability: Companies must report positive earnings in the most recent quarter and over the previous four quarters.
Public Trading History: Companies must have been trading publicly for at least one year.
U.S. Domicile: The company must be based in the United States.
Given Solventum’s current market cap of $12.68 billion, it is below the required minimum, raising concerns about its continued inclusion in the index. However, its financial viability and positive earnings bolster its position.
Key Corporate Governance Lessons:
Healthcare Expertise: With nearly 70% of board members having healthcare backgrounds, Solventum leverages industry-specific insights for strategic decision-making.
Elite Leadership: Bryan Hanson’s dual roles as CEO of Solventum and board member of Walgreens Boots Alliance underscore the value of experienced leadership.
Diverse and Inclusive Board: The push for gender parity and a diverse board composition enhances governance quality and innovation.
Proactive Investor Engagement: Solventum actively participated in key investor shows, such as the Piper Sandler Healthcare Conference and the Morgan Stanley Global Healthcare Conference, to build investor confidence.
Corporate Governance Improvements: Implementing ethical practices, transparency, and accountability has strengthened Solventum’s corporate governance framework.
Bold Steps for Large Cap Boards:
Large cap boards can learn from Solventum’s approach to governance and investor engagement to drive long-term success.
If your company aims to join the S&P 500, GBAC BOARDROOMEDUCATION offers customized strategy retreats and knowledge for board chairs to learn and emulate these best practices.
Reach Chad Clark our manging director
