Global investment giant Blackrock has spoken out on share voting rights recently. This has become particularly controversial in the US with tech firms giving their founders’ shares preferential voting rights. For example, Snapchat listed on the New York Stock Exchange earlier this year without giving any voting rights to the shares being floated.
Meanwhile, Facebook, which has a dual share voting structure giving more voting rights to the company’s founders withdrew a proposal to have another class of structure that would have meant Mark Zuckerburg, Facebook’s chief executive retained voting control of the company even while he sold shares to fund his philanthropic projects.
Media reports noted that investors had opposed Facebook’s proposal and were due to take the company to court. Zuckerburg, explaining the decision to withdraw the plan in his Facebook post in September, said: “Over the past year and a half, Facebook’s business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more” and so he had asked the board to withdraw the plan.
Blackrock stated: “While we understand entrepreneurs’ desire to maintain control of their company following an initial public offering,
we believe that shareholders should have a say in critical decisions.”
It was the role of governments to set corporate governance and equity investing standards, Blackrock said. The fund manager stated it would support the creation of regulatory regimes that increase financial market transparency, protect investors, and facilitate responsible growth of capital markets. Blackrock indicated it did not support index funds disinvesting from companies on the basis of their voting rights.
Manifest noted at the time of the Snapchat initial public offering that while the UK had largely eliminated multi-class shares the US maintained the practice. Manifest also commented that in the UK there had been a more consensual approach towards governance reform between issuers, regulators and investors as well as input from other commercial specialists, academics and professional bodies, which had led to strong corporate governance and stewardship codes and shareholder protections embedded into company law.
Blackrock said that if there were no regulatory changes or revised listing standards related to capital structures and proxy voting rights, it believed that companies should receive shareholder approval of their capital structure on a periodic basis via a management shareholder resolution at an AGM.
As part of the management’s proposal, the board should explain why the current capital structure is best for the company and its shareholders. The proposal should give shareholders the opportunity to affirm the current structure or convert it to one share, one vote framework, Blackrock suggested. The fund manager also said that the company should disclose the frequency on which the issue would be voted on by shareholders, potentially between every five to ten years. Boards should make their decisions on their capital structure with an appreciation of their business cycle and long-term value creation Blackrock proposed.
Blackrock added that when there is a vote on a potentially controversial issue, where conflicts might be present, such as executive pay or related-party transactions companies with dual or multi-class capital structures shareholder voting votes should be made equal.
Last Updated: 4 November 2017