Council of Institutional Investors

Dual-Class Stock

When a company goes to the capital markets to raise money from the public, equity investors with the same residual claims should have equal protections and rights, including the right to vote in proportion to the size of their holdings. A growing proportion of newly public companies have differential voting rights that enable founders (and sometimes other insiders) to wield control over public compnaies without holding a commesurate equity stake. 

The good news is that the overwhelming majority of newly public companies (three in four)  embrace equal voting rights upon going public, and an increasing proportion of dual-class companies include time-based sunset provisions in their charters at the time of their initial offering, which ensures that equal voting rights will be adopted without further expense to the company upon a chosen anniversary of the IPO. (CII recommends seven years or fewer.) For examples of a range of approaches that companies have taken with time-based sunsets, click on the navy button to the right. Since 2016, CII has supported sunset provisions if necessary to achieve alignment over a reasonable period of time.  CII continues to view equal voting rights upon IPO as the optimal approach, and the overwhelming majority of U.S. IPOs indicate a consistent view. Click here for CII's Dual-Class IPO Snapshot: First 6 months of 2021 and Click here for CII's historical statistics on U.S. IPOs in since 2017.

[Insert pie chart from 1H 2021: Dual class IPOs and use of time-based sunsets]

[Insert paragraph on pending legilsation here.]


[Subpage 1: CII Advocacy on Dual-Class Stock (covering bill in greater detail and pst enagement with ABA, exchanges justifying the need for legislative route]

[Subpage 2: Index Providers and Dual-Class Stock]


[Move into Subpage 1:]
In 2019 CII submitted a letter to the Delaware Bar and a letter to the American Bar Association petitioning to amend corporate law in those jurisdictions to prevent multi-class voting structures from extending beyond the seventh anniversary of an IPO, unless each class, voting separately, supports extending that structure by a majority of outstading shares. The ABA rejected CII's petition. The Delaware Bar also declined to recommmend  the adoption of CII's proposed amendments.

In 2018 CII submitted a letter to NASDAQ and a letter to NYSE similarly asking these exchanges to require newly-listed companies to either abide by the proportionality principle or wind-down their dual-class structure within seven years of IPO, unless shareholders vote, on a share-for-share basis, to extend that dual-class structure. CII encourages market participants of all types to consider publicly supporting this reasonable compromise.  

[Move into subpage 2]:
CII and some institutional investors turned to three major index providers in the wake of Snap Inc.’s egregious no-vote IPO, which led to three public consultations: 
  • S&P Dow Jones' consultation resulted in barring the addition of multi-class companies to the S&P Composite 1500 index and its components, which covers the S&P 500, MidCap 400 and SmallCap 600 indexes. Existing constituents were permanently grandfathered.
  • FTSE Russell's consultation resulted in excluding past and future developed market constituents whose free float constitutes less than 5 percent of total voting power. Although only a handful of companies do not meet this requirement, FTSE Russell has indicated its intention to consider raising the 5 percent threshold in the future.
  • MSCI conducted the most prolonged consultation of the three, but ultimately chose to continue to ignore voting rights for the purpose of major index construction. MSCI originally contemplated modest reform: excluding no-vote shares from major indexs in cases where the company's listed shares constitute under 17% of total voting power (25% for new constituents). MSCI subsequently released an expanded consultation with a discussion paper contemplating more significant reform: a weight adjustment for each index security based on the proportion of total voting power in free float hands, with no exemption for existing constituents. CII's supportive comment letter offered three ways to realize the benefits of this proposal while softening portfolio disruption: a three-year grace period for existing constituents;  immediate and permanent exemptive relief for adopters of reasonable sunset provisions; and a gradual phase-in of the new methodology. Concluding its consultation, MSCI announced on October 30, 2018 it would continue to ignore voting rights for major index construction.  
Resources [Create separate subpage for resources older than 2 years]
Oct. 6, 2021 Letter commending the Blue Apron board for unwinding its dual-class structure
Oct. 1, 2021 U.S. House panel considers bill curbing dual-class stock
Jan. 22, 2021 Letter objecting to SEC exclusion of shareholder proposals seeking reports on dual-class underwriting 
April 15, 2020 FCLT: Power Play: The Long-Term Impact of Multi-Class Shares
Nov. 26, 2019 ACGA: Letter outlining erosion of Asian public equity standards
Nov. 14, 2019 Financial Times: Dual Share Structures Could Erode Accountability at the Top
Sept. 30, 2019 Bloomberg: Goldman Gives New Reason IPOs May Suffer: Multi-Class Shares
Sept. 25, 2019 Fortune: One Bright Spot from the WeWork Debacle: Turns Out Investors Actually Care about Governance
Sept.13, 2019 CII letter to the Delaware Bar petitioning for legislation to reasonably limit dual-class stock 
June 25, 2019 The Hill: IPO Parade Marches on while Corporate Governance Suffers
July 18, 2018 CII Summaries of Key Academic Literature on Multi-Class Stock and Firm Value
Dec. 10, 2018 Bloomberg: When one Man Dominates a Company: The Problem with Mark Zuckerberg Types
Oct. 24, 2018  CII letter to NYSE proposing listing standard for Dual-Class Sunset Provisions 
Examples of supporting letter: CalSTRS
Oct. 24, 2018 CII letter to NASDAQ proposing listing standard for Dual-Class Sunset Provisions
Examples of supporting letter: CalSTRS
Sep. 14, 2018 CFA Institute: Dual-Class Shares: The Good, the Bad and the Ugly
June 4, 2018 LA Times: Hype and Plunder
May 22, 2018 Bernstein Litowitz Berger & Grossman: When One Share Does Not Mean One Vote: The Fight Against Dual-Class Capital Structures
May 20, 2018 Baran, Forst and Via: Dual Class Share Structure and Innovation
May 15, 2018 WSJ Heard on the Street: Can Super-voting Stocks Survive the CBS Challenge?
Mar. 21, 2018 Kim, Michaely: Sticking Around too Long? Dynamics of the Benefits of Dual-Class Structures
Mar. 21, 2018 Kilpatrick, Townsend and Stockton: Low Vote Share Debate Heats Up 
Feb. 7., 2018 Working paper: Cremers, Lauterback and Pajuste: The Life-Cycle of Dual Class Firms
Jan. 22, 2018 Bloomberg QuickTake: Dual Class Shares
Dec. 7, 2017 Dual Class Discussion Draft: Investor as Owner Subcommittee of SEC Investor Advisory Committee
Nov. 2017 Hunton & Williams overview of legal rights with nonvoting common stock 
Aug. 1, 2017 Andrew Winden: Sunrise, Sunset: An Empirical and Theoretical Assessment of Dual-Class Stock Structures
May 10, 2017 CII: Does Multi-Class Stock Enhance Firm Performance?
Executive Summary | Full Study
April 18, 2017 Lucian Bebchuk and Kobi Kastiel: The Untenable Case for Perpetual Dual-Class Stock
April 10, 2017 CII Podcast: Why Indexes Should Say "No" to Non-Voting Shares
 
Correspondence [Create separate subpage for correspondence older than 2 years]
Oct. 6, 2021  CII letter to Blue Apron board commending recapitaliation 
OCt. 1, 2021 CII letter to leadership of U.S. House Committee on Financial Services 
  Supporting letters:
  Ohio PERS
  CalPERS
  CalSTRS
  Los Angeles County Employees Reitrement Association (LACERA)
  Office of the New York State Comptroller
  Railpen
  Federated Hermes EOS
  Consumer Federation of America
  Public Citizen
  North American Securities Administrators Association
  Healthy Markets Association
Sept. 14, 2021 CII letter to U.K. FCA on dual-class share structures
Nov. 9, 2020 CII letter to Brazilian Securities Commission
Sept. 3, 2020 CII letter to Palantir Technologies
April 23, 2020 CII letter to Hong Kong Stock Exchange
Sept. 20, 2019 CII letter to Airbnb
Sept. 4, 2019 CII letter to Peloton
Aug. 2, 2019 CII letter to the We Company
June 26, 2019 CII letter Endeavor
Mar. 11, 2019 CII letter to Levi Strauss
Feb. 13, 2019 CII letter to Lyft
Nov. 8, 2018 CII letter to Qualtrics International
Sept. 11, 2018 CII letter to Zekelman Industries
Aug. 24, 2018 CII letter to Eventbrite
June 25, 2018 CII letter to Domo
May 14, 2018 CII letter to GreenSky
May 14, 2018 CII letter to Pluralsight
May 9, 2018 CII letter to MSCI on treatment of unequal voting structures
April 18, 2018 CII letter to Pivotal Software
April 18, 2018 CII letter to Vrio
March 22, 2018 CII letter to Hong Kong Stock Exchange
Feb. 27, 2018 CII letter to Dropbox
Oct. 20, 2017 CII letter to Stitch Fix
Oct. 18, 2017 CII letter to MongoDB
Oct. 6, 2017 CII letter to Switch
Sept. 13, 2017 CII letter to Roku 
August 4, 2017 CII letter to Hong Kong on New Board concept paper
August 3, 2017 CII to MSCI responding to consultation on the treatment of no-vote shares
June 20, 2017 CII letter to Blue Apron
April 27, 2017 CII submission to S&P Down Jones consultation on no-vote shares 
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
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
Download CII's List of Companies with Time-Based Sunset Approaches to Dual-Class Stock
Download CII's 2017-2020 IPO Statistics
Download CII's Snapshot of Dual-Class IPOs from the First Half of 2021

Note: For information on the use of CII's company-specific lists for commercial purposes, please e-mail lucy@cii.org.

What counts as dual-class?
As a policy matter, "dual-class stock" encompasses any equity structure involving unequal (sometimes described as "weighted") voting rights, regardless of the number of share classes issued. The "dual class" debate therefore extends to triple-class companies like Snap Inc. as well as some unusually structured single-class companies.For example, Spotify's entry into the public markets included one class of ordinary shares, each entitled to one vote; but the company also granted insiders 10 "beneficiary certificates" for each ordinary share held. Each certificate provides one additional vote but no economic rights. Thus, Spotify's structure functions as de facto dual class while complying with an overly-narrow definition of "one share, one vote." In determining whether a company has a dual class structure, CII adheres to the test of whether voting influence has inconsistencies across outstanding common (or "ordinary") equity; preferred stock is not considered due to its elevated economic rights.

Why do index providers have an appropriate role on this issue? [Move to subpage Index Providers and Dual-Class Stock]
Providers of public equity indexes have an extensive history of exercising discretion to under-represent parts of the "investable universe" that don't meet certain fundamental norms of equity. The S&P 500, for example, has long-excluded master limited partnerships (MLPs), business development corporations (BDCs) and limited liability companies (LLCs). In 2018 the index continued to exercise discretion by excluding prospective entrants that violate the norm of proportionate voting influence according to economic stake.

Additionally, it is important to recognize the role of indexes within the context of deep institutional impediments to addressing this issue elsewhere. The Securities and Exchange Commission currently lacks statutory authority to require exchanges to curb unequal voting rights due to a federal suit brought decades ago by the Business Roundtable, establishing judicial precedent against the SEC taking action. Stock exchanges could address the matter by requiring listed companies to have equal voting rights or reasonable sunset provisions, but the for-profit model and intense competition for new present conflicts for these "self-regulatory organizations." Major U.S. exchanges have rebuffed formal proposals to act since 2014. Further reducing the likelihood of exchange-based reform, multiple non-U.S. exchanges with long-standing "one share, one vote" requirements recently have yielded to "race to the bottom" pressure to attract new listings, permitting dual-class structures in certain circumstances. Global regulatory coordinators like the International Organization of Securities Commissions (IOSCO) are empowered to provide guidance, but not to compel action. 

Exchanges in Germany, France, Italy, Switzerland, Sweden, Canada, Hong Kong, Singapore and the U.K. permit public companies to issue multi-class stock. In other jurisdictions, such as Japan, dual-class offerings are technically allowed, but they are not market practice. Examples of markets that forbid the practices are Belgium, Spain, South Korea, India and Russia.