Council of Institutional Investors

Dual-Class Stock

CII's corporate governance policies endorse the principle of "one share, one vote": every share of a public company's common stock should have equal voting rights. CII believes that when a company goes to the capital markets to raise money from the public, public investors are entitled to certain protections and basic rights, including a right to vote that is proportional to the size of the investor's holdings. CII expects newly public companies to respect the "one share, one vote" principle. If companies have already adopted a dual class system, we expect them to phase it out through sunset provisions. 

The vast majority of U.S. publicly traded companies (about 9 in 10) have a "one share, one vote" structure. But a growing number of start-up companies are opting for dual-class or multi-class share structures with unequal voting rights. Such companies typically have a superior class of common stock designated with more votes per share than an inferior class. The most common ratio is 10:1. Company founders, their families or other insiders generally hold the superior class. It is very common for these arrangements to result in the holders of the superior class controlling the majority of outstanding votes despite holding a small fraction of outstanding equity.
 
Resources & Advocacy
May 10, 2017 Does Multi-Class Stock Enhance Firm Performance?
Executive Summary | Full Study
April 10, 2017 CII Podcast: Why Indexes Should Say "No" to Non-Voting Shares
 
Correspondence
June 20, 2017 CII letter to Blue Apron on its triple-class structure
Mar. 29, 2017 CII letter to Singapore Stock Exchange on preserving one share, one, vote listing standard
Mar. 29, 2017 CII letter to MSCI requesting public consultation on index eligibility of dual-class companies 
Mar. 24, 2017 CII letter to FTSE/Russell requesting public consultation on index eligibitliy of dual-class companies
Mar. 9, 2017 Testimony before the SEC Investor Advisory Committee on Snap
Feb. 3, 2017 CII letter to Snap on its capital structure with no voting rights for public investors
Aug. 20, 2014 CII letter to Swift Transportation on shareowner proposal calling for one share, one vote
Aug. 12, 2014 CII letters to Cablevision SystemsDonegal GroupFacebookFordGoogle and Spirit AeroSystems on shareowner proposals calling for one share, one vote
March 27, 2014 CII letter to NYSE requesting one share, one vote listing standard
March 27, 2014 CII letter to NASDAQ requesting one share, one vote listing standard
March 27, 2014 CII letter to the London Stock Exchange on preserving one share, one vote listing standard
March 27, 2014 CII letter to the Hong Kong Exchange on preserving one share, one vote listing standard
Dec. 10, 2012 CII follow-up letter to NYSE meeting
Oct. 2, 2012 CII letter to NYSE requesting one share, one vote listing standard
Oct. 2, 2012 CII letter to Nasdaq requesting one share, one vote listing standard
 





 

Download CII's list of dual-class companies

The Rise of No-Vote Shares
A growing number of companies are adopting triple-class share structures that include a separate class of stock that offers shareholders no voting rights at all. Snap Inc. was the first company in recent years to make its initial public offering (IPO) with just non-voting shares. Other young companies, including Blue Apron and Altice USA, are going public with triple-class capital structures that include a class of non-voting stock in reserve.
 
No-vote shares are a full-scale repudiation of the “one share, one vote” principle that is core to good corporate governance. Though such shares legally are equities, they function more like subordinated partnership units; holders get a stake in the returns, whether positive or negative, but little else. Non-voting shares rob shareholders of the means to hold management and boards accountable. They amount to a perpetual-control device that lets founders hang onto their power over the company even as their economic stake shrinks. Yet many investors who use indexing strategies will indirectly invest in Snap and any other company that issues non-voting shares if major index providers provide these share classes to be included in their indexes.
 
CII and many investors believe no-vote shares have no place in public companies, and we are pushing back. CII has asked leading index providers FTSE/Russell, MSCI and Standard & Poor’s to exclude Snap (and future companies with no-vote shares), and all three have launched public consultations on this issue. CII is also encouraging index providers to explore measures to incentivize adoption of the “one share, one vote” principle.

U.S. stock exchanges could bar zero-vote companies through their listing standards, but they have not acted. CII continues to advocate for listing standards that promote the “one share, one vote” principle at U.S. and non-U.S. exchanges. To learn more, listen the CII podcast.