The Council of Institutional Investors called on the New York Stock Exchange and the Nasdaq Wednesday to limit listings of companies with dual-class share structures to shorter terms for those shares.
The petitions, announced at a CII conference in New York, urge NYSE and Nasdaq to amend their listing standards so that companies seeking to list multiple share classes with differential voting rights would have to include sunset provisions so those rights are converted within seven years of an initial public offering to "one share-one vote."
"It's really about the long term. We are long-term investors," said CII Executive Director Ken Bertsch in an interview. The organization's members have been seeing a growing trend toward sunset provisions ranging from three to 21 years,"but we think that there needs to be a rule. We think this is the way to go," he said. CII members prefer a sunset limit of seven years or less.
Mr. Bertsch said "a race to the bottom" by exchanges on this issue was accelerated in 2017 during the IPO of Snap Inc., and the 2018 decisions by the Hong Kong and Singapore exchanges allowing dual-class shares.
CII Chairman Ash Williams, executive director and chief investment officer of the Florida State Board of Administration, said investors have seen companies with special voting rights stumble because of self-dealing, lack of strategic planning and ineffective boards, but so far, "external share owners have little recourse."
Mr. Williams said a consensus is now emerging among investors, companies and others that time-based sunset provisions are a sensible solution.
The move is supported by many asset managers including the largest, BlackRock., whose co-founder and Vice Chairwoman Barbara Novick told CII members Wednesday that "enthusiasm" for sunset provisions "understates our level of support."
Nelson Griggs, president of Nasdaq Stock Exchange, said in a prepared statement: "Nasdaq is a firm believer in the flexibility of share structure, in order to provide all investors access to growth companies. That said, we consider the input of all stakeholders when establishing and modifying listing standards and have an independent body that includes investor representation, which makes recommendations to our board about changes to those standards. We will continue to review our listing standards to make sure they protect investors, while also allowing those investors access to innovative companies."
