SEC Member ‘Mindful’ of Precedent Set After Snap IPO

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By Andrea Vittorio

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.

Corporate Governance Concerns

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 avittorio@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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