- Railpen, Council of Institutional Investors lead campaign
- Plan to lobby policymakers, market participants
- Argue dual-class shares hurt corporate governance efforts
Major U.S. and UK pension investors managing over $1 trillion have initiated a campaign to stop companies from using dual-class share structures that place voting power in the hands of specific shareholders at the expense of others.
Launched by the non-profit Council of Institutional Investors (CII) and British railways pensions’ scheme Railpen, others supporting the Investor Coalition for Equal Votes (ICEV) include the Washington State Investment Board and the New York City Comptroller’s Office.
Companies with dual-class structures have two or more types of shares with contrasting voting rights – often one with more voting rights for founders or early investors, and a different one for shareholders with less voting power.
The imbalance means many investors have limited control over how the company is run and can make it more difficult to jointly resist issues such as corporate strategy and executive pay.
Major fund managers have contended with no success against the arrangements for years, claiming such structures – often preferred by high-growth technology firms – destroy shareholder rights and weaken long-term corporate performance.
Despite this, policymakers in countries including Britain and the United States have become supportive of dual-class structures as a way to pull in new listings to their markets. The group said it will urge policymakers and market participants to clarify that proportionate shareholder voting is key to effective control and long-term corporate performance.
Caroline Escott, ICEV Chair and senior investment manager at Railpen, said in the release:
“Voting is an important part of the stewardship toolkit, but dual-class share structures without automatic time-based sunset clauses mean long-term investors are trying to influence with one hand tied behind our backs.
The issue is fundamental to the ability to engage with and hold companies to account on material risks and opportunities, and we hope that the work of ICEV will mark a turning point in the dual-class share structure debate.”
Amy Borrus, executive director of CII, said the campaign would enhance efforts by the group to seek legislative change in the United States, where the group’s draft legislation aims to reduce the use of dual share classes.
Under the draft legislation, national stock exchanges would be expected to stop listings of new dual-class companies unless they have seven-year sunset provisions, or both classes of voters accept the structure within seven years of listing.