Pension Group Urges End to Dual-Class IPO Structure

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The Council of Institutional Investors, which represents the largest pension funds in the U.S., is urging companies to halt a particular IPO structure that gives more control to insiders and less power to investors.

From Reuters:

Members of the Council of Institutional Investors voted to adopt a new policy that all investors in initial public offerings have equal voting rights among their shares, an official of the group said. They are concerned that dual-class share structures with unequal rights make management less accountable.

When executives use dual-class structures, “Basically you have insulated yourself from the broader market,” said Ken Bertsch, executive director of the influential trade association.

[…]

Bertsch and others said the group is putting a new focus on stopping dual-class and multiclass structures in IPOs now after a steady stream of them lately including e-commerce company Alibaba Group Holding Ltd (BABA.N) deal-provider Groupon Inc (GRPN.O) and social network LinkedIn Corp (LNKD.N).

Out of 174 U.S. IPOs in 2015, 27 valued collectively at $12.6 billion used dual-class structures, according to Dealogic. In 2014, 36 IPOs used the structure, with a total value of $9.9 billion, out of a total of 292 U.S. IPOs.

Corporate leaders have defended the structures at bigger companies including Viacom Inc (VIAB.O) and Google parent Alphabet Inc (GOOGL.O). They argued the extra voting power given to founders and top executives helps protect against pressure for short-term returns, especially as activist hedge funds gain clout.

Despite counting many of the largest investors in the world among its members, the Council has been unable to make progress in this area in the past.

 

Photo by jypsygen via Flickr CC License

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