A group that represents big funds like BlackRock and the California State Teachers’ Retirement System is seeking to limit what it deems unequal voting rights at public companies.
In Wednesday letters, the Council of Institutional Investors asked Nasdaq and the New York Stock Exchange to limit newly-listed companies’ trading time if they fail to give equal voting to investors.
The letters criticized companies including Snap, which went public in 2017 without voting rights for external shareholders.
CalSTRS and peer investor California Public Employees’ Retirement Association, another signatory of Wednesday’s letters, have opposed individual companies’ dual class structures in the past. The two pensions criticized Facebook, for example, for a share system that gives founder Mark Zuckerberg more than half of Facebook’s voting power. In a May opinion piece, a CalSTRS portfolio manager called Facebook’s setup “akin to a dictatorship.”
CII counts 226 companies, including tech companies Dropbox and Alphabet, with multiple classes of stock, unequal voting rights and at least $200 million in market capitalization.
Last year, 19% of US companies that went public on US exchanges had at least two classes of stock with different voting rights, compared to just 1% in 2005, according to CII.
CII Chair Ash Williams, executive director and CIO of the Florida State Board of Administration, said the “growing problem” of unequal voting rights “poses danger” to long-term resilience of an increasing number of companies.
Asset managers have also fought the structure. In 2015, Boston-based Northstar Asset Management filed shareholder proposals with Facebook and Google, asking for one vote per share, despite telling Business Insider it was a futile battle.
If companies go public with multiple types of shares, CII’s proposal would require them to convert to a single type of share, each with one vote, after seven years of trading. The practice is not uncommon: of 38 American companies that went public in 2017 and 2018 with a multi-class structure, 11 included time-based stock conversions, CII said.
“Nasdaq is a firm believer in the flexibility of share structure, in order to provide all investors access to growth companies,” the exchange’s president, Nelson Griggs, said in a statement. “That said, we consider the input of all stakeholders when establishing and modifying listing standards and have an independent body that includes investor representation, which makes recommendations to our Board about changes to those standards.”
NYSE did not respond to a request for comment.