The Council of Institutional Investors is pushing the New York Stock Exchange and the NASDAQ to limit listings of companies with dual-class share structures.
The council filed petitions with both the NYSE and the NASDAQ Wednesday, encouraging them to make changes to their listing standards that would result in “one share, one vote” policies at the companies publicly listed on their exchanges.
Both exchanges currently allow companies to list themselves with multiple share classes. Each class comes with a different set of voting rights and dividend payments. According to the council’s announcement, these structures create unequal voting rights and “deprive shareholders of the means to hold executives and directors accountable.”
“This is a core issue for us,” said Jeff Mahoney, general counsel for the Council of Institutional Investors, in a phone interview on Wednesday. “It goes back to one of the original membership-approved policies of the council.”
Representatives for BlackRock, T. Rowe Price, the California State Teachers’ Retirement System, and the California Public Employees’ Retirement System voiced their support for the petition in the Wednesday announcement.
While the Council of Institutional Investors sent a similar letter to both stock exchanges back in 2012, their interest in the issue was renewed by Snapchat’s initial public offering last year, Mahoney said. The tech company listed itself publicly in 2017, but its investors did not receive voting rights, Mahoney said.
The letter sent Tuesday does not request that all initial public offerings exclude dual-class shares like that 2012 letter did. Instead, it asks for companies that do have dual-class shares to institute some sort of time-based sunsets on those dual-class shares, Mahoney said.
“This is a much more modest proposal,” Mahoney said. He added that the Council for Institutional Investors is requesting the time-based sunsets (or expiration dates) because research has shown that the value created by having dual-class share structures diminishes over time.
Specifically, the council is seeking that companies with multiple share classes that have different voting rights include provisions in their governing documents that convert that share structure to a “one share, one vote” policy within seven years, its announcement said.
“CalPERS believes in one share, one vote,” said Simiso Nzima, CalPERS’ head of corporate governance, in a statement. “However, we also understand that early in a company’s public life, there may be a need for protections that enable management to focus on building out a company’s vision and creating the long-term sustainable shareowner value we are looking for as investors.”
Nzima added in the statement that CalPERS believes that those protections should not exist in perpetuity, but rather, that time-based sunsets are a policy that makes sense for those early-stage public companies.
“NASDAQ is a firm believer in the flexibility of share structure, in order to provide all investors access to growth companies,” said Nelson Griggs, president of NASDAQ, in a statement issued in response to the petition. “That said, we consider the input of all stakeholders when establishing and modifying listing standards and have an independent body that includes investor representation, which makes recommendations to our board about changes to those standards.”
Griggs added that NASDAQ will continue to review its listing standards to make sure they continue to protect investors while still allowing them to access innovative companies.
A spokesperson for the New York Stock Exchange declined to comment.