Look for a major spike in activist shareholder efforts in the months to come seeking to give investors more influence at Facebook (FB) , News Corp (NWS) , UPS (UPS) and other major companies that give insiders control.
These corporations and dozens of others were structured at the outset with dual or multi-class voting systems, giving insiders control of the majority of the votes. The structures have already given many institutional investors a significant amount of heartburn. A handful of shareholders and a few funds have taken it upon themselves to try and end the arrangement by backing measures seeking to collapse dual-class share structures at a variety of companies into a single class of stock that would give investors' one vote per share. They have not been successful.
But a recent tectonic shift in the governance landscape suggests that these efforts will escalate in the months to come. At the center of that change in investor attitudes is the recent IPO of Snap (SNAP) The developer of the popular disappearing message app Snapchat took the unprecedented step of issuing only non-voting shares for its IPO. Shareholders complain that as a result the tech darling will be permanently unaccountable to shareholders. Investors, for example, won't have the authority to submit non-binding proposals for consideration at Snap as long as it maintains its non-voting structure.
"I would not be surprised to see the Snap situation lead to more proposals [to collapse dual class stock] next year," said Ken Bertsch, president of the Council of Institutional Investors, a lobby group for the large shareholders.
The CII has been leading an institutional investor effort to discourage other companies from following in Snap's footsteps. The group argues that non-voting shareholders are disenfranchised at Snap and at other companies giving insiders control of the votes. Companies, meanwhile, argue that the dual class structure contributes to stability and long-term shareholder returns. Snap's backers say it could help revive IPOs.
However, investors are hoping to send a message that Snap's approach isn't acceptable, and they intend to drive home that message at the ballot box when they vote their shares for nonbinding proposals seeking to collapse dual-class share structures.
ISS Analytics, the data and analytics arm of Institutional Shareholder Services, notes that investors have so far issued 45 proposals seeking to collapse dual-class voting structures between 2013 and 2017, including three measures that were withdrawn. That's in a universe of roughly 255 companies in the Russell 3000, roughly 8.7% that have classes of stock with different voting rights, ISS notes.
The votes on the proposals have received wide-ranging responses, with some obtaining only 10% or 20% of the Yes or No vote while others have garnered as much as 40% or almost 50%.
Most of the proposals that have emerged recently are appearing at the same set of companies year-after-year, with proponents arguing that their targets have done little in response.
Proposals issued by the Nathan Cummings Foundation at News Corp. received the backing of 47.4% of the yes or no votes in 2014, 49.5% in 2015 and 32% in 2016.
"Pretty much everyone whose name is not Rupert Murdoch supported it in 2015," said Laura Campos, director, corporate and political accountability at the Nathan Cummings Foundation.
Campos noted that Murdoch family insiders via the Murdoch Family Trust control roughly 39% of the voting class B shares and about 14% economic stake in the company.