Investors question Lyft on dual-class shares without sunset

Lyft Inc. and other technologies companies need to "do better than their predecessors" by resisting dual-class shares, a group of institutional investors with $3.2 trillion assets told the ride-hailing company.

On Monday, Lyft filed a revised draft prospectus with the Securities and Exchange Commission that disappointed the group and other investors who were hoping the company would at least include a sunset provision for the structure.

Instead, Lyft is proposing to give its two founders 20 votes a share for every one publicly held share, enabling the founders, who currently own roughly 7% of shares, more than 60% of voting power. "This arrangement imposes a significant gap between those who exercise control over the company and those who have significant exposure to the consequences of that control," the letter writers said.

Signers in the March 14 letter on dual-class shares include the $17 billion Los Angeles City Employees' Retirement System; the $93.9 billion Ohio Public Employees Retirement System, Columbus; New York State Comptroller Thomas DiNapoli and New York City Comptroller Scott Stringer; City of Chicago Treasurer Kurt A. Summers Jr.; International Brotherhood of Teamsters; Hermes Equity Ownership Services; Legal & General Investment Management America; BNP Paribas Asset Management; the U.K.'s Local Authority Pension Fund Forum; and CtW Investment Group, whose members are union pension funds affiliated with Change to Win.

As more technology companies make or prepare for initial public offerings, they are also considering sunset provisions, the investors said in their letter. "By failing to include a reasonable sunset provision, Lyft risks making itself an outlier among its peers, which may lead to investment risk," they wrote.

The Council of Institutional Investors raised similar concerns with Lyft officials in February about what it considers "egregious" dual-class shares and the lack of sunset provisions that pose risk for long-horizon investors.

"It is unusual that Lyft is converting from one share, one vote as a private company to this dual-class structure, raising even more questions on the judgment and independence of Lyft board members," CII Executive Director Ken Bertsch said in an email.

Calls to Lyft were not immediately returned.