Calls to level the playing field when it comes to multi- and dual-class shares are growing in light of MSCI Inc.'s decision not to eliminate companies with unequal voting structures from global equity indexes.
The move last month surprised industry bodies, including those representing the institutional investor community — particularly since index provider rivals FTSE Russell and S&P Dow Jones Indices made moves last year to limit certain listings.
S&P no longer admits firms with dual-class share structures to some of its most well-known indexes, including the S&P 500 index. Companies already in the index are grandfathered.
And FTSE Russell decided that current and future developed market companies whose free-float market capitalization makes up less than 5% of total voting power would be excluded from its indexes.
"When a company goes to the public market for capital, it needs to give public shareholders fundamental rights — voting that is proportional to the investors' economic stake in the company, not what will give the founder perpetual control," said Amy Borrus, deputy director at the Council of Institutional Investors in Washington.
Besides the recent MSCI decision — which also included an announcement that the provider would launch an index series that reflects the preferences of investors wanting to eliminate unequal voting structures — a number of events over the past year or so have helped sharpen focus on the issue:
Last month, 21 executives from the finance world signed the Commonsense Principles 2.0 — an updated guide on corporate governance best practices. Signatories included Laurence D. Fink, CEO of the $6.4 trillion money manager BlackRock Inc.; Mark Machin, president and CEO of the C$366.6 billion ($279.7 billion) Canada Pension Plan Investment Board, Toronto; and Theresa J. Whitmarsh, executive director of the $130.2 billion Washington State Investment Board, Olympia. The principles state that "dual-class voting is not best practice."
In September 2017, the 426 billion Swedish kronor ($46.5 billion) AP7, Stockholm, succeeded in fighting plans by Facebook Inc. to reclassify minority shareholders' shares into non-voting C shares. The pension fund led a lawsuit against Facebook founder Mark Zuckerberg on behalf of minority investors representing $10 billion of investments in the social media behemoth.
In March 2017, Snap Inc. launched its initial public offering with no-vote shares.