In Focus

SEC’s Jackson Urges Exchanges to Consider Sunsets for Dual-Class Companies

In a February 15 speech in California, SEC Commissioner Robert Jackson Jr. urged U.S. stock exchanges to consider changing their standards to require listed companies with dual-class structures to sunset those structures. “I hope that our national securities exchanges will soon consider proposed listing standards addressing the use of perpetual dual-class stock,” Jackson said in the prepared text of his remarks. In the speech, he likened dual-class shares that do not sunset to “corporate royalty” and said such structures were “antithetical to our values as Americans.” He added: “If you run a public company in America, you’re supposed to be held accountable for your work—maybe not today, maybe not tomorrow, but someday.”
 
CII welcomed Jackson’s remarks. “We applaud Commissioner Jackson for using his first major public speech to support CII’s ongoing efforts to address the problem of unequal voting rights,” CII Executive Director Ken Bertsch said in a statement. “A dual-class structure without a sunset provision —‘forever shares’— says to investors, ‘we’ll take your money, but we won’t ever value your vote on how we use your capital to run the business over the long-term.’ That’s not equitable treatment of investors, and it’s certainly not good corporate governance.”

MSCI Proposes Reducing Index Users’ Exposure to Dual-Class Companies

Index provider MSCI on January 31 released an expanded consultation and accompanying discussion paper proposing to adjust multi-class MSCI equity index constituents based on free float and voting power. MSCI estimates that if the proposal were adopted, 12 companies with zero voting power in the hands of public investors would be excluded from its equity indexes, 209 dual-class constituents would see their index market cap reduced and another 32 would see no impact. The changes could take effect for new constituents as early as November of this year, and as early as November 2021 for existing constituents.
 
MSCI’s latest consultation follows its November 2 announcement, that it would temporarily exclude new multi-class companies with unequal voting rights from two of its benchmark indexes, the MSCI ACWI Investable Market Index (IMI) and MSCI US Investable Market 2500 Index and consider expanding its decision. In July, FTSE Russell announced plans to require developed market constituents to have at least 5% of voting rights in free float. Later that same month, S&P Dow Jones announced it would no longer add multi-class companies to its Composite 1500 index, which includes the S&P 500, MidCap 400 and SmallCap 600.

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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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