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SEC advisory panel calls for more dual-class share scrutiny

The SEC Investor Advisory Committee unanimously approved a recommendation Thursday calling for the Securities and Exchange Commission to require more disclosure from companies with dual-class shares.

The recommendation, developed by the advisory group's Investor as Owner Subcommittee, calls on the SEC's division of corporate finance "to respond to the increase in dual-class and other entrenching governance structures by continuing to scrutinize disclosure documents filed by companies with such structures." It also recommends an SEC pilot program to monitor shareholder disputes arising out of such structures, to see if enhanced disclosure requirements are needed.

The subcommittee noted a dramatic increase in the number of public companies employing dual-class or other entrenching governance structures since 1980, with a 44% increase between 2005 and 2015 alone.

Among the many risks that may require more disclosure, the group said, are recent actions taken or being considered by major index providers to limit or bar securities with non-traditional governance attributes, which are likely to increase as passive index investing continues to grow. "Given the consensus view that index-inclusion and listings each can have a material effect on value and liquidity of securities, the risk of exclusion from indexes or delisting from exchanges are attributes that may deserve explicit disclosure requirements, to the extent those risks are known by registrants," the recommendation said.

The advisory group subcommittee will also consider a recommendation by Commissioner Robert Jackson Jr. that the exchanges propose listing standards curtailing perpetual dual-class stock.