Skip to main content
MENU
Subscribe
  • Login
  • My Account
  • Logout
  • Register For Free
  • Subscribe
  • Topics
    • Alternatives
    • Artificial Intelligence
    • CIOs
    • Consultants
    • Defined Contribution
    • ESG
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Private Credit
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • Special Reports
    • Washington
    • White Papers
  • International
    • U.K.
    • Canada
    • Europe
    • Asia
    • Australia - New Zealand
    • Middle East
    • Latin America
    • Africa
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Influential Women in Institutional Investing 2024
    • Eddy Awards
  • Resource Guides
    • Active Thematic Global Equities
    • Retirement Income
    • Fixed Income
    • Pension Risk Transfer
    • Pooled Employer Plans (PEPs)
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • ESG Rated ETFs
    • Divestment Database
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • DC Plan Design: Improving Participant Outcomes
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
  • Print
Breadcrumb
  1. Home
  2. GOVERNANCE
April 01, 2019 01:00 AM

Investors intensify fight against dual-class shares

Institutions pushing ahead on several fronts to encourage one share, one vote structure

Hazel Bradford
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    CFA Institute's Jim Allen

    Institutional shareholders are considering all possible options in an increasingly active campaign to discourage companies from adopting dual-class share structures, from one-on-one engagement to a longer-term push to give regulators more power to curb them.

    "It all starts with one share, one vote. If shareholders don't have that, it's hard for them to push for improved governance and performance," said Jim Allen, head of Americas capital markets policy at CFA Institute in Washington. Newly launched companies "are leaving money on the table" if lower governance standards translate into lower multiples. "That's money you'll never have to invest, and you are starting out at a disadvantage. When you mess with the governance, investors are going to notice."

    Particularly for founders of new companies, choosing a share structure can seem like a choice between offering a single class of common stock, with directors chosen by the most active investors, or dual-class share, which gives them more control over the company's goals and operations.

    Dual-class shares have become an almost-daily topic for investors and asset managers, spurred by recent initial public offering announcements from technology companies such as Lyft Inc. and the expectation of others later this year including Uber Technologies Inc., Pinterest Inc., Airbnb Inc., Slack Technologies Inc., and The We Co. And it's not only technology companies. Levi Strauss & Co. announced that its re-entry to public markets, set to begin March 28, under a 10-to-1 voting structure will keep control in family hands, not public shareholders.

    For some investors, that means engaging those companies one by one. A group of institutional investors with $3.2 trillion in assets told ride-hailing company Lyft in a March 14 letter that its plan to give two founders 20 votes per share for every publicly held share, amounting to more than 60% of voting power, "imposes a significant gap between those who exercise control over the company and those who have significant exposure to the consequences of that control." Trading for Lyft is scheduled to begin March 29.

    Those investors 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; 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 pension funds sponsored by unions affiliated with Change to Win. Messrs. DiNapoli and Stringer are the sole fiduciaries of the $197.3 billion New York State Common Retirement Fund, Albany, and $186.3 billion New York City Retirement Systems.

    Activist investors like CtW vow to fight to end dual-class shares altogether, while others, led by the Council of Institutional Investors in Washington, are hoping to persuade new companies to at least have sunset provisions on the share structure, preferably no longer than seven years. That gives the founders some time to grow their company, said CII Executive Director Ken Bertsch.

    Feeling the pressure

    Exchanges are also feeling the pressure from investors.

    In November, CII filed petitions with the New York Stock Exchange and Nasdaq Inc. calling on them to limit listings of companies with dual-class share structures. The move was supported by many asset managers including BlackRock Inc. and T. Rowe Price Group Inc., which are also speaking up individually.

    So far, exchanges have said little. Responding to the CII petition, Nelson Griggs, Nasdaq Stock Exchange president and executive vice president of corporate services, said that flexibility of share structure was necessary to provide all investors access to growth companies, but pledged to review listing standards to make sure they protect investors.

    Kurt Schacht, New York-based managing director of the CFA Institute's Standards and Financial Market Integrity division, is not expecting much from exchanges. "The CFA Institute has been advocating globally to stop this practice, but it prevails due to the commercial interests of the exchanges and entrepreneurial managers that want your money but not your input as a shareholder. Given subscription rates for these IPOs, there's apparently no shortage of flip-or-flop speculation that passes for investment. The goal of more long-term capital formation and shareholder rights is now an afterthought in the IPO debate," Mr. Schacht said.

    Members of the Securities and Exchange Commission's Investor Advisory Committee urged the regulator a year ago to require more disclosure from companies with dual-class shares, but they are not holding their breath, particularly after comments by SEC Chairman Jay Clayton that he was "not persuaded by absolutists on either end" of the issue.

    On the sidelines

    The SEC has been on the sidelines of this debate since 1990, when the U.S. Court of Appeals for the District of Columbia Circuit ruled that the agency exceeded its authority when it tried to bar national securities exchanges and self-regulatory organizations from listing stock that restricted or reduced per share voting rights. Mr. Clayton has also expressed disdain for the strategy of pressuring indexes to exclude companies from indexes, a practice he called "governance by indexation" at a CII conference in March 2018.

    The tactic has had mixed results. MSCI Inc. decided not to eliminate companies with unequal voting structures from global equity indexes after pressure from investors, while competitors FTSE Russell and S&P Dow Jones Indices limited certain listings, including in the S&P 500 index. S&P limited the access of multiclass companies to their benchmark equity indexes, and FTSE Russell requires companies to offer non-restricted shareholders at least 5% voting rights to be included in its main indexes.

    That approach also doesn't sit well with SEC Commissioner Robert J. Jackson Jr., who thinks investors will be hurt if high-performing dual-class companies are removed from indexes, and he doesn't see stock index providers going along. "They have no incentive to do it. The question is whether someone else should do it," Mr. Jackson said at a University of Delaware corporate governance symposium on March 20.

    One tactic that Mr. Jackson urges investors to consider is taking the fight to the states, particularly Delaware, where many U.S. companies are registered and therefore subject to state law, which tends to favor shareholder rights.

    Other critics are starting to lay the groundwork for Congress to overturn the appeals court decision that clipped the SEC's authority, an effort that could take years.

    Corporate board members may also feel the pressure from asset owners and asset managers. Dayna Harris, a Pasadena, Calif.-based partner with corporate governance consultancy Farient Advisors LLC, said that board members are becoming more responsive on governance issues like executive pay and board diversity, and the increasing sensitivity of dual-class shares could become another concern. Unequal voting rights "takes away what governance is all about, which is to be responsive to investors. It's just not the right answer for the long run, for a company that's relying on public money," she said.

    CII's Mr. Bertsch agrees that more questions should be raised to the board because "they are legally responsible at the end of the day."

    Another tactic is to make it a matter of policy for asset owners, said CII Chairman Ash Williams, executive director and chief investment officer of the Florida State Board of Administration in Tallahassee, which oversees a total of $204.3 billion. The board just modified its corporate governance principles and proxy-voting guidelines so it can now track voting results by share class, wherever dual-class structures exist.

    "You do all of the above," Mr. Williams said.

    Related Articles
    Investors question Lyft on dual-class shares without sunset
    Investor group calls on SEC for more disclosure on human capital
    Commentary: Dual-class structures rob voices of shareholders
    Tradeweb raises $1.1 billion in year's No. 2 IPO
    Uber is said to seek about $10 billion in year's biggest IPO
    Dual-class debate demands scrutiny
    Uber value slips below $70 billion after slumping in rocky debut
    Uber's conservative IPO valuation faces first public-market test
    Recommended for You
    Rick Funston
    Rick Funston aims to help plan fiduciaries with new handbook
    Delaware-flag-main_i.jpg
    Delaware OKs company-friendly changes to corporate law in win for Zuckerberg camp
    OCIO: A Specialized Landscape
    Sponsored Content: OCIO: A Specialized Landscape
    Sponsored
    White Papers
    The State of Lifetime Income Report
    The Next Wave of LDI Evolution
    Retirement security to future income wins, TIAA brings you the latest financial…
    U.S. Public Funds Top Performers: Q2 2024
    Generative AI Investing: Opportunities at a Key Tech Inflection Point
    Research for Institutional Money Management: Advancing Physical Risk Modelling,…
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    October 23, 2023 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Custom Content
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2025. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Artificial Intelligence
      • CIOs
      • Consultants
      • Defined Contribution
      • ESG
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Private Credit
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • Special Reports
      • Washington
      • White Papers
    • International
      • U.K.
      • Canada
      • Europe
      • Asia
      • Australia - New Zealand
      • Middle East
      • Latin America
      • Africa
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Influential Women in Institutional Investing 2024
      • Eddy Awards
    • Resource Guides
      • Active Thematic Global Equities
      • Retirement Income
      • Fixed Income
      • Pension Risk Transfer
      • Pooled Employer Plans (PEPs)
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • ESG Rated ETFs
      • Divestment Database
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • DC Plan Design: Improving Participant Outcomes
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
    • Print