In a speech given early in the week at Stanford University’s Rock Center for Corporate Governance, titled, “Mutualism: Reimagining the Role of Shareholders in Modern Corporate Governance,” Commissioner Stein addressed a broad range of topics, including cybersecurity issues and shareholder engagement.  Commissioner Stein also commented on dual class capital structures.  Commissioner Stein, not speaking on behalf of the Commission, noted that in her view, dual class capital structures were not democratic and created a disconnect between the interests of shareholders and control parties.

Later in the week, Commissioner Jackson, speaking at Berkeley and making his first public remarks since joining the Commission, commented on perpetual dual class structures.  Commissioner Jackson cited statistics showing that the trend was on the rise, noting that 14% of the 133 companies that listed on U.S. exchanges in 2015 had dual class voting structures, compared to 12% in the prior year.  Commissioner Jackson outlined some of the benefits of dual class structures that have been noted in academic literature, as well as some of the disadvantages, and focused his comments on companies that adopt dual class structures and provide for these in perpetuity, as opposed to allowing for some sunset provisions.  The Commissioner cited research from a review of 157 dual-class IPOs that were undertaken in the last 15 years and noted significant differences in performance between those companies that had sunset provisions and those that did not.  Included in the remarks are additional data points and analyses.  While solely voicing his own views, Commissioner Jackson seemed to favor seeing modified listing standards from the national securities exchanges that would address the inclusion of sunset provisions.

Here are the links to the two speeches: (Commr. Jackson); and (Commr. Stein).

In late January 2018, MSCI reopened a consultation with the investment community on the treatment of unequal voting structures. Under the MSCI’s proposal, the weights of shares with unequal voting rights in the MSCI Equity Indexes would be adjusted to reflect company level listed voting power in addition to free float. MSCI also released a discussion paper examining the theoretical and practical issues of the application of the “one share, one vote” principle. MSCI’s proposal follows the recent decisions of stock exchanges in Hong Kong and Singapore to allow dual-class voting structures in the face of increasing competition among exchanges to list companies. In contrast, in July and August 2017, S&P Dow Jones Indices and FTSE Russell excluded from some of their indices companies that have multiple voting classes.

Feedback on the MSCI’s proposal may be submitted on or before May 31, 2018 and MSCI will announce the results of the consultation on or before June 21, 2018. In the meantime, MSCI will continue to apply the temporary treatment of unequal voting structures until further notice, which does not affect any current index constituents (for more information on the temporary treatment, see our prior blog post available here).

A copy of the discussion paper is available here.