Snap Inc., the developer of the popular disappearing message app, is getting a barrage of criticism from institutional investors over its unprecedented plan to issue nonvoting shares as part of its expected initial public offering next month.
"This is egregious," said Aeisha Mastagni, a portfolio manager of mega-public-pension fund California Public Employees' Retirement System. "When you are a public company and you are tapping the public markets, there needs to be a mechanism to hold companies accountable to shareholders. A lack of voting rights means we have no say in the board of directors."
If it goes through with the IPO described in its S-1 filing, Snap would essentially be impervious to an activist investor at its gate as the board's makeup would be controlled primarily by insiders, led by co-founders Evan Spiegel and Bobby Murphy.
According to the Council of Institutional Investors, insiders would continue to control more than 90% of the votes even as their ownership interest declines over time. The group, which represents assets of over $20 trillion under management, sent a letter to Snap's founders and chairman-designee, Michael Lynton, urging them to reconsider plans to take the company forward with shares that have no voting power.
"We are concerned that Snap Inc. plans to go public with a structure denying outside shareholders any voice in the company, and request to meet with you to discuss our concerns," CII Executive Director Ken Bertsch said in the letter. "We strongly urge Snap to reconsider the proposed structure, and instead go to market with a single class voting structure."