April 15, 2019

Investor Relations Magazine – Think Tank Criticizes Activist Influence as Having “Negative” Impact on Shareholder Value

By Andrew Holt

Approach can disadvantage some shareholders, but also provides flexibility for companies

The call last month from a group of investors for Lyft to cancel its dual-class shares has seemingly shifted the dial on an issue that has long been a source of debate.

A letter addressed to Lyft’s directors was penned by a powerful group of investors from the UK’s Local Authority Pension Fund Forum, French-owned BNP Paribas Asset Management, pension funds representing public employees in New York, Los Angeles, Chicago and Ohio, and US labor unions the International Brotherhood of Teamsters and the United Automobile Workers.

Lyft’s IPO went ahead on March 29 and valued the company at $24.3 bn. It includes a dual-class stock structure, with one class of shareholders getting 20 votes per share and another getting one vote per share. But while the investors failed to win the battle, their letter is just the latest salvo fired in the warring debate about the suitability of dual-class shares within companies.

The Council of Institutional Investors (CII) is in no doubt about its position on dual-class shares, having been founded in part to promote one-share, one-vote as a bedrock principle of corporate governance for publicly listed companies.

‘The notion is that equity interests should align with voting power, and that super-voting shares can lead to distortions that disadvantage other shareholders,’ Ken Bertsch, executive director at the CII, tells IR Magazine. ‘In Lyft’s case, the founders control nearly 50 percent of votes with less 5 five percent of shares.’

That said, CII’s main request is ‘quite moderate,’ notes Bertsch: ‘To sunset these structures [phasing out the extra voting rights] within a reasonable period so that we do not create long-lasting structures with limited accountability. An increasing number of companies are doing that. You can argue that in the near-term aftermath of an IPO, risk around a dual-class structure can be priced in. But we do not think that IPO markets adequately price in risk for problems 10, 20 or 30 years down the line.’

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