Council of Institutional Investors

Controversy over Dual-Class Stock Steals Headlines Again
Thursday, May 14, 2015
by: Rosemary Lally

Section: CII Governance Alert

The debate over dual-class stock is back in the news, with U.S. shareholders voting on ‘one share, one vote’ proposals at annual meetings and E.U. lawmakers considering legislation to give long-term shareholders extra voting rights.

So far this proxy season, four proposals asking companies to develop recapitalization plans to replace their current dual-class stock structures with one-share, one-vote systems have been considered by shareholders.
At Swift Transportation’s May 8 annual meeting, a proposal filed by the International Brotherhood of Teamsters to replace the company’s current dual-class stock structure with a one-share, one-vote system received 82 percent support from shareholders of the company's Class A publicly traded shares (or 67 percent of all publicly traded shares outstanding). In 2014 the proposal won 79 percent support of Class A shares voted, representing 61 percent of all publicly traded shares outstanding.

The current stock structure provides Swift's CEO Jerry Moyes with majority control over a company for which he owns a minority stake.

"It's time Swift's board demonstrate its independence and protect the interest of all shareholders," said Ken Hall, Teamsters general secretary-treasurer. "The current system creates opportunity for conflicts of interest between Moyes and other shareholders as well as material, financial risk for the company and its investors."

The Teamsters point out that disclosures in Swift's 2015 proxy show that Moyes and certain affiliates have pledged approximately 63 percent of total holdings, or approximately 24 percent of the company's total outstanding shares.

In addition to the high level of support for the Teamsters’ proposal, more than 40 percent of the publicly traded shares cast in the election of Swift directors withheld support from the independent directors being elected.

Other proposals to adopt one-share, one vote structures received the following levels of shareholder support so far in 2015:

• First Citizens BancShares, 20 percent of the votes cast
• Stewart Information Services, 93 percent of the votes cast
• Tyson Foods, 22 percent of the votes cast

At Facebook’s June 11 annual meeting, shareholders will vote on a proposal co-filed by Northstar Asset Management, James McRitchie and John Chevedden asking the company to adopt a one-share, one-vote structure. Last year a similar proposal co-filed by James McRitchie and Myra Young garnered 17 percent of the votes cast.

While this issue continues to be debated in U.S. boardrooms, the European Parliament’s legal affairs committee narrowly backed key changes to shareholder rights rules that would reward long-term shareholders with extra voting rights, tax incentives, loyalty dividends or loyalty shares.

Each E.U. country would decide what the qualifying period to receive these rewards would be, but the legislation stipulates it should be no less than two years.

France already has moved in this direction. Its Florange Law, which went into effect this year, allows French companies to adopt rules granting shareholders who have owned stock for two years or more to have two votes for each of their shares. The controversial law upends the governance best practice of ‘one share, one vote’ endorsed by CII in its policies.  
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