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Investors Petition NYSE, NASDAQ to Curb Listings of IPO Dual-Class Share Companies

Traders Magazine Online News, October 24, 2018

John D'Antona Jr.

The Council of Institutional Investors (CII) recently filed petitions with the New York Stock Exchange (NYSE) and the NASDAQ, asking both to limit listings of companies with dual-class share structures.

Specifically, the petitions ask the exchanges to amend their listing standards to require that, going forward, companies seeking to list that have multiple share classes with differential voting rights include in their governing documents provisions that convert the share structure within seven years of the initial public offering (IPO) to “one, share-one, vote.” This will ensure voting power directly proportional to an investor’s capital at risk.

CII, which represents pension funds and other long-term investors, is urging the exchanges to act to counter the trend of companies going public with unequal voting rights, which deprive shareholders of the means to hold executives and directors accountable.

“While some companies that are controlled by virtue of special voting rights function as benevolent dictatorships, we have seen others stumble because of self-dealing, lack of strategic planning and ineffective boards,” said CII Chair Ash Williams, executive director and CIO of the Florida State Board of Administration. “When problems emerge, external shareowners have little recourse. Now, a consensus is emerging—among investors, companies and the law firms and other IPO gatekeepers—that time-based sunsets are a sensible solution to the growing problem of unequal voting rights, which poses danger to long-term resilience of an increasing number of companies.”

BlackRock, the largest global asset manager, believes that one share, one vote is the preferable structure for publicly listed companies. BlackRock also supports time-based sunset provisions for multi-class companies and believes that listing exchanges must play an important role.

“BlackRock believes that equal voting rights are a fundamental tenet of good corporate governance. Multiple stakeholders – including listing exchanges and policymakers – must play a role in setting effective corporate governance standards to protect shareholder rights,” said BlackRock Co-founder and Vice Chairman Barbara Novick. “We encourage U.S. exchanges to show global leadership on voting rights by requiring companies to either automatically convert or give shareholders the right to extend a multi-class structure. Doing so will re-establish the importance of equal voting rights for all public shareholders.”

Donna Anderson CFA, vice president and head of corporate governance at asset manager T. Rowe Price, said, “A confluence of events has led to what we believe is a growing consensus on the issues surrounding differential voting rights. We would like to see the U.S. stock exchanges lead the process to find a solution that serves the long-term interests of all market participants.”

California State Teachers’ Retirement System Chief Executive Officer Jack Ehnes said, “One of the strengths of the U.S. economy is the dynamism of U.S. companies. Successful American companies are constantly changing—and reinventing the way they do business. So it only makes sense that they should embrace change in their own governance that ultimately will strengthen shareholder value.”

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