Some of the UK’s biggest pension schemes are stepping up their action against companies with dual class share structures, arguing that these are “diluting shareholders’ ability to influence portfolio companies”.
The Investor Coalition for Equal Votes (ICEV) – currently chaired by Railpen’s Caroline Escott – said in a new report that there was renewed backing among shareholders of all kinds for a move back to a traditional “one share, one vote” structure to ensure fairness and representation.
Dual class share structures have become more common in recent years, particularly in the US. They give certain shareholders more rights, such as Meta founder and CEO Mark Zuckerberg, who has the power to reject shareholder resolutions despite being a minority shareholder.
The coalition said: “The 2024 proxy season demonstrated an increase in shareholder support for resolutions on governance issues – including those requesting a shift to a one share, one vote structure – across the board, against a backdrop of generally falling shareholder support for other shareholder proposals on environmental and social issues.”
The report sets out the approaches taken by the ICEV’s members, of which there are more than 30 including Railpen and Nest alongside major institutional investors from the US, Canada, Japan and Norway.
How Railpen votes on dual class share structures
Both Railpen and Nest usually vote against any company proposal to create a dual class share structure. The pension funds say that any companies with such structures should have time limits on them.
In addition, Railpen says it will “consider a vote against all members of the governance committee (or other committee we deem responsible) at companies that have a dual class share structure without a sunset clause of seven years or less from the date of the initial public offering” (IPO).
If a company’s dual class shares have a sunset clause of more than 20 years from the date of the IPO, Railpen says it will also consider voting against all board members and the chair.
Directors at newly listed companies with such ultra-long sunset clauses could find themselves voted against at other companies for which they are – or are seeking to become – booard members, Railpen says.
Nest supports ‘one share, one vote’
Meanwhile, at Nest, the master trust encourages companies with dual class share structures to keep these under regular review.
Similar to Railpen, Nest’s policy states: “We may not support the (re)-election of board directors if the company has implemented a multi-class capital structure without a reasonable, time-based sunset provision.
“We will generally vote against proposals to create a new class of common stock where this deviates from the one share, one vote standard.”
Other institutions in the report say they will vote against capital resolutions at companies with dual class share structures.
As well as engaging with companies, the coalition has also been engaging with policymakers in the UK, the US and the European Union to lobby against the “rolling back of equal voting rights”.
Escott said: “As policymakers around the world roll back investor protections, it’s vital that independent shareholders think about how to most effectively wield the available stewardship tools to ensure their voice as the owners of capital is heard.
“The nature of unequal voting rights means that shareholder voting sanctions are less impactful than they otherwise would be.
“However, we encourage investors to be creative around how they use their vote and to continue to use this tool as a public expression of their concerns around unequal voting rights – as they would on any other issue that matters to financial outcomes for their beneficiaries and clients.”
