In Focus

Most U.S. IPOs Continue to be One Share, One Vote 

CII analysis of 124 IPOs on U.S. exchanges in 2017 finds that 101 (81%) provided equal voting rights.  However, the two largest companies to IPO as measured by market cap were dual class.  While Snap, Altice USA and Blue Apron pushed the envelope with authority for non-voting shares, no companies went public with non-voting share classes in the second half of the year, after strong reaction against Snap.  Six companies that IPO’d in 2017 with unequal voting rights put in place time-based sunset provisions on those structures.

Hong Kong Exchange Moves to Permit Dual-Class Listings

The Hong Kong Exchange on December 15 indicated its intention to propose permitting dual-class (or “weighted voting right”) listings, albeit with some limitations and safeguards “to mitigate expropriation and entrenchment risks.” The intent is to attract “more listings by innovative companies,” and compete with other exchanges, particularly in the United States, that already permit dual class. Eligibility would be limited to large "innovative" market cap companies, and safeguards would include election of independent directors on a one-share, one-vote basis; a requirement that only company directors hold shares with extra voting rights, with limits on transferability; and clear warning labels for investors including unique stock code markers.

House Approves Bill to Regulate Proxy Advisors in Largely Partisan Vote

The U.S. House passed H.R. 4015, which would place stringent regulations on proxy advisors, on a largely party-line vote on December 20. Fate of the initiative in the Senate is uncertain. CII opposed the act, most recently sending letters to the Speaker of the House and Minority Leader on December 12 and a letter co-signed by 45 investors and investor organizations to the House Financial Services Committee on November 9. Proxy advisory firms “have less role in proxy vote outcomes than they did a decade ago,” said CII Executive Director Ken Bertsch. “The current drive for a new regulatory structure appears to be driven mainly by CEOs’ desire to fend off negative shareholder votes on their pay, which have been required only in recent years.”

CII Report Underlines Risks with Convoluted Chinese Corporate Structure

A new CII report highlights the risks posed to investors by a common structure called a variable interest entity (VIE), which is employed by many Chinese companies listed on U.S. stock exchanges. Firms using this structure include internet giants like Alibaba, which in 2014 conducted the largest IPO in history. U.S. exchanges are seeing a resurgence of these Chinese VIE IPOs, with 20 filings this year including 15 since September 1, compared to six in 2016 and seven in 2015. See this Barron’s article for more.

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CII Priorities

Fair Financial RulesSensible, effective rules safeguard investors and strengthen markets.

Dual-Class StockEach share of a public company's common stock should have one vote.

Majority Voting for DirectorsIn uncontested elections, directors should be elected by majority vote.

Universal ProxyIn contests, investors should be free to vote for the nominees they prefer.

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