The Council of Institutional Investors (CII) today called for newly public companies to adopt equity structures and governance provisions that protect shareholders.
A company going public should have a “one share, one vote” structure, simple majority vote requirements, independent Board leadership and annual elections for Board directors. CII members, who collectively hold more than $3 trillion in assets, today adopted these expectations in an effort to protect shareholder interests.
This new CII policy was prompted by investor concern about high-profile initial public offerings (IPOs) on U.S. markets using dual-class structures. Companies that went public with multiple classes of shares include Alibaba, First Data, Groupon, LinkedIn, Square and Zynga. In 2015, according to Dealogic, dual-class IPOs raised more than twice as much capital than the year before. CII believes that even high-performing multi-class companies, such as Facebook, incur long-term risks because of the misalignment between equity and voting power.
“When a company goes to the capital markets to raise money from the public, investors are entitled to certain protections and basic rights, including a vote that’s proportional to the size of their investment,” said Ken Bertsch, CII Executive Director. “It is particularly troubling when companies tapping public markets insulate controlling shareholders forever, with lack of reasonable sunset requirements on provisions that disempower public shareholders.”
CII urges companies that are going public to adopt fundamental corporate governance best practices from the outset. Newly public companies that lack these basics should adopt them over a reasonable period of time.
“CII is setting forth a sensible set of investor expectations that ultimately are in the best interest of shareholders and companies alike,” said Charles Elson, Director of the University of Delaware’s Weinberg Center for Corporate Governance. “Special protections for insiders and disparities between economic ownership and voting power become increasingly problematic as IPO companies mature. Moreover, it is just shortsighted for investors to accept dual-class voting structures because when something goes wrong – and at every company something eventually will go wrong – shareholders have no power to make change.”
Read the press release here: http://www.cii.org/files/about_us/press_releases/2016/03_23_16_cii_ipo_policy_press_release.pdf
View CII’s new policy statement, “Investor Expectations for Newly Public Companies” here: http://www.cii.org/IPO_policy
