SEC Eyes Dual Class Shares for Reform

March 15, 2018

Might the SEC require sunsetting of dual-class shares listed on stock exchanges? Two recent speeches by the Democrat members of the Securities and Exchange Commission (SEC), Kara Stein and Robert Jackson, Jr., levied criticism at this capital structure, in which one class of shares gets one vote per share, while another class (typically founders in an IPO) gets multiple votes per share. Both Commissioners began with the usual disclaimer that their views were their own, but a new policy may be brewing.

In a February 13 speech at Stanford University, Commissioner Stein said that dual classes may “provide a means to evade management and board accountability.” In a speech on February 15, Commissioner Jackson called dual-class stock a way of perpetuating “corporate royalty.” He suggested the stock exchanges require sunsetting—an idea promptly seconded in a press release by the Council of Institutional Investors (CII), which has an entire landing page devoted to the topic, with a list of companies that have dual classes, as well as a smaller list showing how some of these companies have sunset the classes. CII has also spoken out against non-voting shares in IPOs, as previously reported in the Ticker.

A December 2017 draft report by the SEC’s Investor Advisory Committee found 701 U.S. public companies with dual-class stock structures, noting that the number jumped by 44 percent from 2005 to 2015. Major dual class companies cited in the report include Alphabet Inc. (Google), Facebook, Snap and Nike.

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