ICEV warns dual-class shares will harm investor interests

December 1st, 2023

A report by the Investor Coalition for Equal Votes (ICEV) on unequal voting rights has urged companies with dual-class share structures to switch to single-class to equalise investor voting rights.

A dual-class share structure involves a company issuing two share classes – one typically offered to the general public, and the other to company founders, executives, and family – with different voting rights.

The ICEV, which was founded last year by the UK’s Railpen and the US-based Council of Institutional Investors, has released a report highlighting a significant increase in the number of initial public offerings (IPOs) with dual-class share structures.

Between 2020 and 2022, more than 40% of US tech IPOs had dual-class structures compared with 20% of US non-tech IPOs. In 2019, just 7% of US companies in the Russell 3000 Index had a dual- or multiple-class share structure.

The report warns that increased use of these structures is likely to harm the interests of long-term investors and, in turn, the interests of the savers and beneficiaries who rely on them.

The research finds any potential financial advantages of dual-share companies decrease over time, usually within a few years of the IPO.

It also finds clear evidence that management and boards in companies with these structures are more insulated from the perspective of independent investors – whose views are more closely aligned with the needs of beneficiaries and clients.

The report outlines recommendations aimed at companies, policymakers and others to support phasing out unequal voting rights.

It recommends companies adopt a single-class share structure at IPO or as soon as possible.

For those that use dual-class structures it recommends they implement a time-based sunset clause of no more than seven years after IPO to revert to a single-share class structure.