The investment manager of the £37bn UK railways pension schemes and the Council of Institutional Investors (CII) have launched a collective investor initiative to push back against unequal voting rights at companies.
The Investor Coalition for Equal Votes (ICEV), as the initiative has been dubbed, is a coalition of asset owners including Railpen, Minnesota State Board of Investment, New York City Comptroller’s Office, New York State Common Retirement Fund, Ohio Public Employees Retirement System, and the Washington State Investment Board.
The aim of the coalition is to prevent the further enabling of dual-class share structures without strict mandatory time-based sunset clauses in jurisdictions like the UK and the US.
In the first phase of the initiative, ICEV will carry out a campaign with pre-IPO companies and their advisers, as well as policymakers, commentators and index providers in priority jurisdictions.
Announcing the initiative, Railpen and CII said that although many newly public companies embraced equal voting rights, public shareholder rights had eroded among a minority of IPO companies in recent years across several countries, as company founders seek to secure disproportionate control and policymakers to encourage firms to list in their jurisdictions.
High-profile examples of IPOs that had had dual-class structures include those of Google in 2004, Facebook in 2012, and Snap in 2017.
In the UK, companies with certain dual class share structures are now permitted to list on the premium segment, following changes to listing rules confirmed by the regulator last year.
Caroline Escott, chair of ICEV and senior investment manager at Railpen, said the hope was that ICEV’s work “will mark a turning point in the dual-class share structure debate”.
“At a time when policymakers increasingly recognise the value of effective investor stewardship to achieving good member outcomes, it’s vital that the shareholder voice is heard by company management,” she said.
“Voting is an important part of the stewardship toolkit, but dual-class share structures without automatic time-based sunset clauses mean long-term investors are trying to influence with one hand tied behind our backs.”
“It’s incumbent on investors to communicate early and together about this long-term corporate governance trainwreck”
Amy Borrus, executive director of CII
Amy Borrus, executive director of CII, added: “Indefinite control is naturally alluring to any founder contemplating an IPO, so it’s incumbent on investors to communicate early and together about this long-term corporate governance trainwreck. We are pleased to be partnering with Railpen as co-leaders in this campaign, as this issue is increasingly global.”
In the US, CII has drafted legislation that would require national stock exchanges to bar listings of new dual-class companies unless they have seven-year sunset provisions, or if each class, voting separately, approves the unequal structure within seven years of the IPO.
Founded in 1985, CII is a non-profit, nonpartisan association of US public, corporate and union employee benefit funds, other employee benefit plans, state and local entities charged with investing public assets, and foundations and endowments with combined assets under management of around $4trn (€3.8trn).
The creation of ICEV is in keeping with Railpen’s making one-share, one-vote arrangements as one of its engagement and voting priorities for 2022. Announcing its 2022 voting policy in December, it said it would next year collaborate with others to encourage the shift to one-share, one-vote arrangements.