{"id":273,"date":"2017-09-29T11:09:10","date_gmt":"2017-09-29T05:39:10","guid":{"rendered":"http:\/\/ga-institute.com\/to-the-point\/\/?p=273"},"modified":"2018-02-21T20:18:42","modified_gmt":"2018-02-21T14:48:42","slug":"no-nos-coming-from-some-quarters-of-the-capital-markets-on-dual-or-multi-classes-of-shares-for-public-companies-ftse-russell-sp-dow-jones-council-of-institutional-investor-weigh-in","status":"publish","type":"post","link":"https:\/\/ga-institute.com\/to-the-point\/no-nos-coming-from-some-quarters-of-the-capital-markets-on-dual-or-multi-classes-of-shares-for-public-companies-ftse-russell-sp-dow-jones-council-of-institutional-investor-weigh-in\/","title":{"rendered":"“NO-NO’S” COMING FROM SOME QUARTERS OF THE CAPITAL MARKETS ON DUAL- OR MULTI-CLASSES OF SHARES FOR PUBLIC COMPANIES — FTSE Russell, S&P Dow Jones, Council of Institutional Investor Weigh In…"},"content":{"rendered":"

Issue 2.3\u00a0 – October 4 2017\u00a0<\/b><\/p>\n

Tech companies are especially in the crosshairs on this and\u00a0<\/strong>related issues.<\/strong><\/span><\/em><\/h3>\n

This is a heads up, especially, to Tech firm executives and board rooms and key insiders of all company sizes:<\/p>\n

Powerful key capital market players don’t\u00a0<\/strong>like to see IPOs coming to market now\u00a0<\/strong>with dual- or multiple-class voting shares.<\/strong><\/span><\/h3>\n

\"\"One of the big news items as we came into September here in New
\nYork was generated by S&P Dow Jones Indices<\/strong> — newly-public
\ncompanies will be barred from some of the many indexes \/ indices \/ benchmarks that global investors use if the company (1) issues multiple classes of voting shares or (2) has a very small percentage of voting stock in the hands of non- restricted shareholders.<\/p>\n

Note that the action taken includes future barring of companies from the S&P 500; the S&P Composite 1500; S&P Midcap 400; and, S&P SmallCap 600 (all registered trademarks of the company).<\/p>\n

This comes in the recent days after IPO shares (a prime example is Snap Inc.<\/strong>, with US$3.4 billion in market cap in March 2017) which came into public ownership with in reality no voting rights. This was not a good example of “democratic capitalism,” and “investors having their say,” corporate governance experts groused.<\/p>\n

Earlier, of course, we saw companies like Google (IPO in 2004) coming to market with dual-class shares (that began the recent trend of tech founders holding voting shares in different classes).<\/p>\n

* * *<\/p>\n

\"\"One week earlier, FTSE Russell<\/strong> announced its decision (in the week before S&P DJ announced its new policies). FTSE Russell will bar companies from its popular indexes if companies have 5% or less of voting rights in the hands of unrestricted shareholders. This includes no inclusion of the IPO company in the Russell United States Indexes; the FTSE Global Equity Index Series (GEIS); and non-cap weighted indexes such as the FTSE and Russell RAFITM Index Series.<\/p>\n

Take note:<\/p>\n

Companies presently in these and other FTSE Russell indexes will have\u00a0<\/strong>five years to change their voting structure (from today to September\u00a0<\/strong>2022).<\/strong><\/span><\/h3>\n

CFO<\/strong> magazine noted that 40<\/strong> corporate issuers in the U.S.A. do not meet the FTSE Russell guidelines (the 5% rule) including Clear Channel Outdoor; SecureWorks; Terraform Global; VMWare; Virtu Financial; Hyatt Hotels<\/strong>; and, U.S. Cellular.<\/strong><\/p>\n

FTSE Russell wanted to make the threshold 25%<\/strong> and will re-visit that higher limit annually. CFO says on that basis, 148 issuers have at least 5% restricted but could not meet the 25% rule if this was adopted by the influential FTSE Russell organization for its index\/benchmark products. (Note: FTSE Russell is a trading name of FTSE International and Frank Russell Company; both are members of the London Stock Exchange Group plc.)<\/p>\n

* * *<\/p>\n

\"\"The influential Council of Institutional Investors (CII)<\/strong> put out a statement praising the moves: CII members represent more than US$3 trillion in Assets Under Management.<\/p>\n

Keep in mind: In March 2016, the Council issued a statement that “a company going public should have ‘one share\/one vote’ policies, with an independent boards and annual elections for all directors.”<\/p>\n

The CII 2016 policy statement was prompted by high-profile IPOs debuting on U.S. markets in 2016 with multiple-class structures. These included such firms as: Alibaba; First Data; Groupon; Linked In;\u00a0<\/strong>Square<\/strong>; and, Zynga<\/strong>. (In 2015, CII cited Dealogic<\/strong> data showing that dual-class IPOs raised more than twice the capital than was raised in 2014.)<\/p>\n

CII believes that even high-performing multi-class companies\u00a0<\/strong>such as Facebook incur long-term risks because of the mis-<\/strong>alignment between equity and shareowner voting power .<\/strong><\/span><\/h3>\n

CII Executive Director Ken Bertsch<\/strong> remarked: “It is troubling when companies tapping public markets insulate controlling shareholders forever, with lack of reasonable sunset requirements on provisions that dis-empower public shareholders.”<\/p>\n

The CII set out “key practices” that investor-members feel undermine accountability:<\/p>\n

    \n
  • Multi-class equity structures have unequal voting rights.<\/li>\n
  • Plurality vote requirements for uncontested director elections.<\/li>\n
  • Lack of independent board leaders.<\/li>\n
  • Classified board structures.<\/li>\n
  • Super-majority vote requirements for bylaw amendments \/ other proposals.<\/li>\n<\/ul>\n

    These are other elements are spelled out in CII’s “Investor Expectations for Newly-Public Companies.” Expect to see these in coming proxy voting resolutions submitted by institutional investors.<\/p>\n

    * * *<\/p>\n

    \"\"And from far away: Hong Kong Exchanges and Clearing, Ltd —<\/strong> operators of The Hong Kong Stock Exchange (HKEX)<\/strong> is hearing from CII as well as from Norway’s Sovereign Fund managers ( These power players in capital markets want to see the Exchange not set up a parallel exchange that allow listing\/trading of dual-class listings (the approaches are favored by many company founders in Asia).<\/p>\n

    Right now, the Hong Kong Exchange does not allow dual-class listings. That, the exchange owners worry, is setting up an environment in which IPOs skip over to other exchanges with more lax listing rules.<\/p>\n

    Hong Kong, says Bloomberg LP<\/strong>, is the world’s fourth largest stock Exchange. Allowing dual- or multiple-class shares to trade on a new exchange or on the Hong Kong Exchange (say the protesting
    \norganizations, would encourage other exchanges around the world to instigate a race to the bottom. The U.S.A. maybe included!<\/p>\n

    We should remember that reference to Alibaba (above). Corporate Governance critics charge that the company skipped Asian exchanges to issue its IPO in the U.S.A. — where exchanges do allow dual- or multi-class shares to be listed and traded.<\/p>\n

    Bloomberg LP reports that seven (7) of the large IPOS coming to market are multi-class: Alibaba; Baidu; JD.com; Netease; Ctrip.com; Weibo; TAL Education; New Oriental Education; ZTO Express;<\/strong> and 58.com<\/strong>.<\/p>\n

    Stay tuned to this issue, especially if your company is: (1) in the tech industry and (2) considering going public in the future.<\/p>\n

    Key Takeaway: A growing universe of investors want\u00a0<\/strong>single class stock to be issued!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

    Tech companies are especially in the crosshairs of investors and regulators now on this and\u00a0related issues affecting shareowners.
    \nThis is a heads up, especially, to Tech firm founders, C-Suite executives and board rooms and key insiders of all company sizes:<\/p>\n

    Powerful key capital market players don’t\u00a0like to see IPOs coming to market now\u00a0with dual- or multiple-class voting shares.
    \nOne of the big news items as we came into September 2017 here in New York was generated by S&P Dow Jones Indices — newly-public companies will be barred from some of the many indexes \/ indices \/ benchmarks that global investors use if the company (1) issues multiple classes of voting shares or (2) has a very small percentage of voting stock in the hands of non- restricted shareholders.<\/p>\n","protected":false},"author":15,"featured_media":279,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[172,162,171,134,144,135,69,50,145,129,124,141,1003,132,155,158,72,787,163,174,160,133,120,121,118,119,122,123,136,81,791,65,46,167,789,146],"class_list":["post-273","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-asia","tag-baidu","tag-bloomberg-lp","tag-cfo-magazine","tag-cii","tag-clear-channel-outdoor","tag-corporate-governance","tag-corporate-proxy-issues","tag-council-of-institutional-investors","tag-democratic-capitalism","tag-dual-share-classes","tag-frank-russell-company","tag-ftse","tag-geis","tag-hong-kong-exchange","tag-hong-kong-investment-management","tag-investing","tag-ipo","tag-jd-com","tag-multiple-class-shares","tag-norway-sovereign-fund","tag-rafitm-index-series","tag-sp-500","tag-sp-composite-1500","tag-sp-dow-jones-indices","tag-sp-global","tag-sp-midcap-400","tag-sp-smallcap-600","tag-secureworks","tag-shareowner-activisim","tag-silicon-valley","tag-sri","tag-sustainable-investing","tag-tal-education","tag-tech","tag-universal-ownership"],"acf":[],"_links":{"self":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts\/273","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/comments?post=273"}],"version-history":[{"count":15,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts\/273\/revisions"}],"predecessor-version":[{"id":1022,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/posts\/273\/revisions\/1022"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/media\/279"}],"wp:attachment":[{"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/media?parent=273"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/categories?post=273"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ga-institute.com\/to-the-point\/wp-json\/wp\/v2\/tags?post=273"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}