Stay current on changes and developments in corporate law with a wide variety of resources and tools.
Regulators should be “mindful” of the precedent that could be set by Snap Inc.’s public offering of non-voting stock, one of the Securities and Exchange Commission’s two members said March 9.
The company behind the Snapchat app recently became the first to go public with shares lacking voting rights. Buyers of those shares can’t vote on issues such as executive compensation and director nominations while its founders retain super-voting shares.
“Voting rights have been a foundational component of sound corporate governance,” Democratic commissioner Kara Stein said at a meeting of the SEC’s Investor Advisory Committee. “Unequal voting rights present complex and new issues that need to be understood and addressed.”
The meeting was meant to provide the commission advice on whether or how to address the issue. Michael Piwowar, who is acting as SEC chair while the president’s pick awaits approval, didn’t touch on the topic of unequal voting rights for common stock in his remarks to the advisory committee.
Snap is the most recent—and most extreme—example of a high-profile technology company choosing to go public with a multi-class share structure. Alphabet Inc.’s Google started the trend in 2004, but Snap’s approach goes further than what Facebook Inc., Twitter Inc. and other companies have done since.
“In the long run, we need to critically assess our regime for initial public offerings,” Stein told the committee.
A group representing institutional investors with trillions in combined assets said the commission should work with U.S.-based stock exchanges to prevent companies from following Snap’s lead.
“With the Snap IPO, it is clearer than ever that current rules are ineffective and need to be revisited,” Ken Bertsch, executive director of the Council of Institutional Investors, told the committee. The council is also asking S&P Dow Jones Indices LLC and MSCI Inc. to bar companies with non-voting stock from their indexes.
Investors are concerned that such a share structure insulates companies from the accountability of public ownership. Snap has said that stockholders will benefit from a voting structure that prolongs its ability to remain founder-led.
“Is this a slap in the face of corporate governance?” asked the CFA Institute’s Kurt Schacht, who chairs the Investor Advisory Committee.
For David Berger, a partner at the law firm Wilson Sonsini Goodrich & Rosati, who was involved in Google’s IPO, the answer is no. “I actually believe many Silicon Valley companies strive to meet the highest standards of corporate governance,” he said at the meeting. “This applies even to the many companies that have adopted multi-class structures.”
Berger said multi-class stock helps companies like Google deal with market pressures that discourage risk-taking and favor short-term projects over long-term investments.
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)