The campaign to save “one share, one vote”

Good governance and shareholder democracy are being undermined by companies issuing shares with limited voting rights. But investors are starting to push back, says Merryn Somerset Webb.

Should firms that don't offer one vote per share have their index weightings adjusted?

2008 AFP

I write a lot here about the importance of shareholder democracy. It isn't a subject that seems to much bother the world's big tech companies, many of whom operate multi-class share systems that give the founders rather more power per share held than everyone else.

Facebook has two classes of shares, for example. Hold Class A and you get one vote per share; hold Class B and you get ten. It is the same at Fitbit, GoPro and TripAdvisor.

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The tech firms aren't alone in this, of course (the US Council of Institutional Investors maintains a list of all the guilty parties in the US here; it says that almost one-fifth of the companies that went public last year have dual-share classes with unequal voting rights. But they are now are taking it to new lows.

When Snapchat listed last year, the $3.4bn worth of stock it sold came with no voting rights at all. This might make sense to the founders of listed firms (who can blame them for not wanting to give up control?) but it doesn't work very well for the other owners of the firms (everyone else).

Buy shares which have no votes or a meaningless level of voting rights (which you are doing automatically if you are a passive investor) and you have no hold over management at all: you effectively have to trust them to do the right thing for ever. Which they probably won't.

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This lack of oversight doesn't do much for management attitudes. As Tom Braithwaite points out in the FT, Alphabet's chief executive, Larry Page, and co founder Sergey Brin didn't turn up for their last meeting; Mark Zuckerberg "indulged a few questions" at his but "some complained they did not get a fair hearing"; Netflix just held a terrible online only meeting; and Elon Musk appeared happier to indulge in "Twitter flim flam" at his meeting than to answer real questions from shareholders.

Good news, then, that MSCI is holding a consultation on whether firms that don't offer one vote per share should have their index weightings adjusted to reflect the lack of equality, something that might encourage them to think about their structures anew.

Good news, too, that some big institutional investors seem to have managed to rouse themselves to support the idea. Legal & General, (which looks after Norway's whopping oil fund), Allianz, and the Investment Association (which represents the UK industry as a whole) are all for it, for example.

There's an extremely long way to go here. I can't see dual structures disappearing in a hurry. But if they ever do, the votes, in the main, will revert to the big institutional investors. Will they use them the way the end owners (us) want them used? And more importantly, will they give us any say in how they are used? I wouldn't bet on it.




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