ICEV reveals policies of major investors on dual-class share structures

November 29th, 2024

While investors value the ‘one share, one vote’ principle, many see dual class share structures as appropriate in certain circumstances and for a limited time, according to a report by the Investor Coalition for Equal Votes (ICEV).

ICEV’s Voting on Voting Rights report presented the voting policies of 31 of the world’s largest investors on dual-class share structures, which are equity setups where companies issue multiple share classes with different voting rights.

These structures are often used to enable insiders such as company founders, executives and family members, to retain control of the company.

The report said the ‘one share, one vote’ structure is the “cornerstone of the capitalist model” as it allows for effective scrutiny, challenge and accountability of companies, which are key elements of shareholder democracy and good corporate governance.

ICEV revealed Railpen’s investment policies agrees that differential voting rights weaken the ability of minority shareholders to effectively hold companies accountable.

In addition, investors such as BNP Paribas and California Public Employees’ Retirement System generally oppose directors who nominate committee members to a board with a multi-class share structure and unequal voting rights, unless the company provided a reasonable sunset clause.

Meanwhile, investors including BlackRock, Canada Pension Plan Investments and Ohio Public Employees Retirement System, rule that in certain markets, at temporarily, companies have a valid case for listing dual-class shares with differentiated voting rights.

Thomas Bolger, senior stewardship analyst at Minerva Analytics, said: “Whilst the principle of one-share one-vote and proportionate voting rights to economic ownership has long been a cornerstone of good governance and supported by institutional investors, listing rule and regulatory changes around the world have eased rules on the adoption of dual class structures.

Although there may be benefits for newly listed companies to adopt dual-class structures for a limited time to ensure continuity and a smooth transition from private to a public company, it is important that such structures are accompanied by appropriate protections to avoid entrenchment of the board and management and disenfranchisement of minority shareholders.

Minerva is positioned to support investors in voting policy application on dual-class structures and shareholder rights with a range of voting guidelines available for adoption across a suite of resolution types such as changes to capital structure, director elections, capital authority approvals and shareholder proposals.”

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