Companies that keep control by giving public investors little to no say in board elections and other matters shouldn’t be allowed to call the shares they sell common stock, according to a panel advising the Securities and Exchange Commission.
The term should only be used by companies going public with stock that gives its holders a traditional one vote per share, the SEC’s Investor Advisory Committee said in a draft recommendation that it’s considering.
“If you take a security public and it has zero voting rights, I don’t think that’s common stock anymore,” Harvard Law School professor John Coates said at a committee meeting Dec. 7. Coates, a member of the committee, said the SEC’s staff “ought to think carefully” about when the label applies.
The commission has already shown a willingness to make voting status more apparent in its comments on disclosures for Snap Inc.'s initial public offering earlier this year. The Snapchat maker, which took the growing trend of issuing stock with less power to a new voteless extreme, added the phrase “non-voting” to the first page of its IPO filing based on feedback from the SEC’s staff.
Companies should also tell investors more about the risks of stock structures that give different voting rights to different investors, the committee’s draft says. Those risks now include being blocked from joining popular benchmarks like the S&P 500 and the Russell 3000, after major index providers acted on shareholder concerns about a lack of accountability.
“The reason it matters for investors,” Coates said, is that being included or excluded from an index “will directly affect liquidity and it will directly affect value.”
Companies say these so-called dual-class shares let executives focus on long-term goals rather than short-term market pressures. The committee’s proposal on dual-class disclosures is expected to go to a vote in March before being sent as a recommendation to the SEC.
The committee is working on another proposal related to corporate reporting on cybersecurity risks. That one is more likely to be acted on by the commission, which recently revealed a hack of its own.
To contact the reporter on this story: Andrea Vittorio in Washington at email@example.com
To contact the editor responsible for this story: Yin Wilczek at firstname.lastname@example.org
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)