Asset owners join forces against dual-class shares

Asset owners in the U.S. and U.K. are joining forces to address dual-class share structures, with the launch Tuesday of the Investor Coalition for Equal Votes.

Led by RPMI Railpen, London, which runs £37 billion ($46.2 billion) of assets on behalf of the railway pension funds, and the Council of Institutional Investors in Washington, the new initiative is backed by investors with a collective $1 trillion in assets, with more asset owners and possibly money managers expected to sign on.

Founding members include the $279.7 billion New York State Common Retirement Fund, Albany; New York City Comptroller Brad Lander, fiduciary of the $265.9 billion New York City Retirement Systems; Washington State Investment Board, Olympia, overseeing $193.8 billion in assets; $123.8 billion Ohio Public Employees Retirement System, Columbus; and Minnesota State Board of Investment, St. Paul, with $94.1 billion in defined benefit plan assets.

"It is an effort by large asset owners and CII to make sure companies that go public are accountable," said Amy Borrus, CII executive director, in an interview.

The Investor Coalition for Equal Votes plans to engage with public and private market participants, IPO advisers, and index providers in priority jurisdictions, to curtail the usual of dual-class share structures or at least have them include time limits. Ms. Borrus said coalition members will be talking to investment bankers and other gatekeepers for companies considering going initial public offerings, and the companies themselves "before they make that fateful decision," she said.

Caroline Escott, chairwoman of the coalition and senior investment manager at Railpen, said in a news release, "At a time when policymakers increasingly recognize the value of effective investor stewardship to achieving good member outcomes, it's vital that the shareholder voice is heard by company management." Having dual-class share structures without automatic time-based sunset clauses means "long-term investors are trying to influence with one hand tied behind our backs," Ms. Escott said.

The campaign will advocate globally. In the U.S., CII has drafted legislation that would require national stock exchanges to bar listings of new dual-class companies unless they have seven-year sunset provisions, or if each class approves in separate votes the unequal structure within seven years of the IPO.

Ms. Borrus said the CII campaign for time-based sunsets of dual-class structures is gaining ground. While rare a few years ago, 51% of newly public U.S. dual-class companies incorporated time-based sunsets in the first half of 2021, CII found.