BOSTON (Reuters) - A
trade group representing top U.S. pension funds and asset managers, including
BlackRock Inc and T. Rowe Price Group, will ask stock exchanges to limit how
long companies may operate with unequal voting rights for shareholders.
The move is meant as a
compromise to solve one of the trickiest issues in American corporate
governance, said Ken Bertsch, director of the Council of Institutional
Investors, based in Washington, D.C., which organized the effort.
Past calls to bar
dual-class shares have gone nowhere even as the shareholding structures remain
popular in initial public offerings of technology companies and have led to controversies
at larger firms including Facebook Inc.
Shares of this kind are
widely held by big funds despite their concerns that the limited voting rights
can lead to insular boards and poor corporate oversight.
Large investors “need to
participate in the market, so they want a systemic solution” rather than
foregoing shares of particular companies, Bertsch said.
Specifically the trade
group will ask New York Stock Exchange parent, Intercontinental Exchange Inc,
and Nasdaq Inc to require in their listing standards that companies seeking to
go public using multiple share classes with unequal voting rights have plans to
equalize them within seven years, according to letters seen by Reuters that the
trade group plans to send on Wednesday.
Companies could extend
the structures another seven years if authorized by shareholders, voting on an
equal basis, under the trade group’s proposal.
“Investors should be
allowed to make an informed choice about investing in a company with a
multi-class structure,” Nelson Griggs, President of Nasdaq Stock Exchange, said
in a statement. Eliminating the choice of using multiple share
classes could lead companies to “stay private or sell themselves. Those
outcomes preclude retail public investors from participating in the company’s
growth.”
Intercontinental
Exchange spokeswoman Lisette Kwong declined to comment.
In addition to the large
asset managers, the Council’s membership includes top state pension funds such
as the California Public Employees’ Retirement System and the Florida State
Board of Administration which oversees retirement assets.
The Council has pressed
for an end to dual-class systems in the past, and for action by regulators, to
little effect so far. Stock index providers have taken a range of stances on the
question of whether to include shares of companies with unequal rights.
The Council’s latest
effort accepts that some companies with unequal voting rights would continue
that way.
Such companies would
include cloud-storage provider Dropbox Inc, Snapchat parent Snap Inc, and
meal-kit maker Blue Apron Holdings Inc, which all have gone public since last
year with little or no voting representation for certain investors.
In all the council said
19 percent of IPOs on U.S. exchanges last year had at least two classes of
stock with different voting rights.
Some technology
executives argue the unequal structures give business leaders more leeway to
focus on long term goals rather than answer to short term Wall Street
expectations.
Critics respond that the
setups leave shareholders with little recourse when problems emerge, especially
over the longer term.
The issue came to a head
in May at Facebook, where a majority of outside investors backed a measure to
revamp its voting structure amid concerns about how the company had handled
content and privacy issues, but the vote had no impact given the majority
control of voting rights by company founder and CEO Mark Zuckerberg.
In a statement provided
by the Council, BlackRock co-founder and vice chairman Barbara Novick said that
“BlackRock believes that equal voting rights are a fundamental tenet of good
corporate governance.”
Donna Anderson, head of
corporate governance at T. Rowe Price, said in an interview there are signs
that time limits for multiple share classes will catch on. She cited a growing
number of IPOs with the feature and supportive comments about such limits from
U.S. SEC commissioner Robert Jackson in February.
“We’re in a potentially
unique moment of consensus,” she said.
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