- About CII
- Board of Directors
- U.S. Asset Owners Advisory Council
- Corporate Governance Advisory Council
- Markets Advisory Council
- Committees & Working Groups
- CII Staff
- Press Releases
Leading Investor Group Fall Conference
September 11-13, Long Beach, CACII Elects Board Members for 2023-2024 Leading Investor Group Spring Conference,
March 6-8, Washington, D.C.CII Hails SEC for Closing Rule 10b5-1 Insider Trading Loopholes Leading Investor Group Fall Conference
September 21-23, BostonCII Elects Board Members for 2022-2023 - Members Also Approve Revised Policies on Poison Pills and Shareholder Meetings CII Spring Conference, March 7-9, Washington, D.C. Leading Investor Group Hails SEC Rule Requiring Universal Proxy Cards in Contests for Board Seats CII Virtual Fall Conference, September 22-24 CII Elects Board Members for 2021-2022 CII Virtual Spring Conference, March 8-10 SEC Muzzles the Voice of Investors by Raising the Bar on Shareholder Proposals Leading Investor Group Seeks Strengthened Sustainability Reporting CII Virtual Fall Conference, September 17-22 Leading Investor Group Dismayed by SEC Proxy Advice Rules Leading Investor Group Calls for Action on Racism Amy Borrus to Become Executive Director of the
Council of Institutional Investors on July 1CII Statement on Virtual Shareholder Meetings During Public Health Emergency CII Elects Board Members for 2020-2021, Approves Three Policies CII Spring Conference, March 9-11, Washington, D.C. Leading Investor Group Blasts SEC’s Proposed Rules for Proxy Advice and Shareholder Proposals CII Announces Advisory Council Members for 2020 Leading Investor Group Rebukes SEC for Proposed Rules That Undercut Critical Shareholder Rights Leading Investor Group Urges Companies to Commit to Long-Term Executive Compensation Council of Institutional Investors Board Appoints Amy Borrus to Succeed Ken Bertsch as Executive Director Media Advisory: CII Fall Conference, September 16-18, Minneapolis Council of Institutional Investors Responds to Business
Roundtable Statement on Corporate PurposeLeading Investor Group Calls Out Directors Responsible for
Dual-Class Companies Without “Sunsets”Leading Investor Group Petitions SEC to Require Clear Disclosure on CEO Pay Targets Council of Institutional Investors Says Lyft’s Planned Dual-Class Structure is Harmful to Investors Media Advisory
CII Spring Conference, March 4-6, Washington, D.C.CII Statement on Share Buybacks CII Research and Education Fund Publishes
Guide to Disclosure of Board Evaluation ProcessesInvestor Group Applauds CommonSense Principles 2.0 CII Fall Conference, October 23-25, New York City Leading Investor Group Responds to President’s Tweet on Quarterly Financial Reporting Investor Group Responds to Wall Street Journal Editorial CII Applauds Shareholder Protections in House Bill CII Elects New Board, Names Florida SBA Executive
Director & CIO Ashbel Williams ChairNew Report Details Practical Steps Corporate Boards Can Take to Combat Sexual Harassment CII Applauds SEC Commissioner Jackson's Call for Listing Standards to Require Sunsets on Dual-Class Stock CII Spring Conference, March 12-14, Washington. D.C. CII Announces Advisory Council Members for 2018 CII Report Highlights Risks Associated with a Common Chinese Corporate Structure Institutional Investors Oppose Stitch Fix Dual-Class Structure but Welcome Sunset Provision Uber’s Governance — Investor Response Do Not Disadvantage US Investors on Research,
CII Asks SECCII Fall Conference, September 13-15, San Diego CII Welcomes S&P Dow Jones’ Decision to Ban New Multi-Class Companies from Key Stock Indexes CII Applauds FTSE Russell Decision to Set Voting Rights
Minimum for Inclusion on IndexesInvestor Group Urges Blue Apron to Ditch No-Vote Shares Institutional Investors Dismayed by House Passage of
Financial CHOICE ActCII, Institutional Investors with $4+ Trillion in Assets Oppose
Anti-Shareholder Provisions of the CHOICE Act
- CII in the News
- Governance & Financial Information
- Contact Us
- CII Research and Education Fund
Leading Investor Group Calls Out Directors Responsible for
Dual-Class Companies Without “Sunsets”
Dual-Class Companies Without “Sunsets”
Washington, D.C., August 7, 2019 — The Council of Institutional Investors (CII) today published a list of 159 directors who served on boards of U.S. public companies at the time they went public with dual-class share structures with unequal voting rights and no provision to “sunset” that structure within a reasonable time period.
Specifically, the list focuses on directors of companies that made their initial public offering (IPO) in 2018 and 2019 to date; it excludes directors of dual-class IPO companies that put in place time-based “sunsets” of seven years or less to wind down to one class of stock with equal voting rights.
The “Dual-Class Enablers” spreadsheet identifies other U.S. public company boards on which these individuals currently serve.
CII, which represents pension funds and other long-term investors, believes that differential voting rights let founders operate like dictators, often to the detriment of all shareholders.
“The board that brings a company to public markets with unequal voting rights is responsible for the decision to disempower public shareholders,” said CII Executive Director Ken Bertsch. “The board’s decision can be a red flag of discomfort with accountability to outside shareholders.” He said that investors “may want to raise concern about that in their engagement with other boards on which these directors serve. Some investors may choose to vote against directors of single-class companies who participated in pre-IPO board decisions to adopt dual-class equity structures without sunsets elsewhere.”
Said Bertsch: “A dual-class company’s adoption of a clear and reasonable time-based ‘sunset’ provision at IPO substantially ameliorates concerns for CII and many investors about the lack of accountability.” Evidence and logic suggest that damage from unequal voting rights is a longer-term problem, he said.
A significant benefit of the list could be its deterrent effect. “It may cause directors of private-companies that are considering an IPO to think more carefully about the benefits and costs of adopting a dual-class structure,” Bertsch explained. “Similarly, directors who serve on nominating committees at single-class companies may think twice about a candidate for board service who was responsible for taking a company public with an open-ended dual-class structure.”
The list currently identifies 68 dual-class directors in 2018 and 91 so far for companies that made their IPO in 2019. The list excludes companies with IPOs that were less than $200 million, special-purpose acquisition companies (SPACs), foreign private issuers (FPIs) and real estate investment trusts (REITs). CII staff will update the list periodically.
CII and many institutional investors believe that every share of a public company’s common stock should have equal voting rights. The vast majority of U.S. public companies have a one share, one vote structure. Other companies typically have a superior class of common stock with more votes per share than an inferior class, with founders, their families or other insiders holding the superior class shares.
Dual-class structures with differential voting rights are becoming more popular with IPO companies, particularly in tech sectors. In the first half of 2019, 26% of IPOs (excluding FPIs, SPACs, and REITs) had dual-class structures with unequal voting rights, up from 11% in 2018. However, this trend is partially off-set by an increasing number of dual-class IPOs that sunset the provisions (see list here).
Last October, CII filed petitions with the New York Stock Exchange and the NASDAQ asking both to limit new listings of companies with dual-class share structures (see press release). The petitions asked the exchanges to amend their listing standards to require that, going forward, companies seeking to list that have multiple share classes with differential voting rights include sunset provisions in their governing documents to convert the share structure within seven years of IPO to one share, one vote.
#####
Click for PDF version. For media inquiries, please contact CII Director of Research Glenn Davis.