(Bloomberg) -- Alphabet Inc., Snap Inc. and Facebook Inc. all have dual-share classes -- a practice that has drawn criticism from investor advocates who say it can allow insiders to control companies for decades.
Now a top official at the U.S. Securities and Exchange Commission wants to prevent the next generation of tech powerhouses from following suit.
When going public, many companies have issued special share classes that give founders more power to pick board members and decide whether the business can be sold. SEC Commissioner Robert Jackson Jr. said such unique shares should eventually expire and become ordinary stock, so that regular investors aren't permanently at a disadvantage to “corporate royalty.”
“Those companies are asking shareholders to trust management's business judgment -- not just for five years, or 10 years, or even 50 years. Forever,” Jackson said in a Thursday speech. “While it is fair to ask people to place their eternal trust in their partner, our country's founding principles and our corporate law counsel against the creation of corporate royalty.”
Snap Controversy
While Jackson said that dual-class shares can have value, at least initially, he called for stock exchanges to develop a way for them to “sunset.”
Photo-sharing app Snap ratcheted up the controversy over dual-share classes last year when it offered no voting rights to investors in its $3.4 billion initial public offering. The company was made ineligible for the S&P 500 Index, limiting the ability of passive investment funds that track the benchmark index to own its shares.
Almost one-fifth of the companies that went public last year have dual-share classes with unequal voting rights, according to the Council of Institutional Investors. Of those 23 companies, 74 percent had share classes that will remain separate indefinitely, said the CII, whose members include large pension funds.
To contact the reporter on this story: Ben Bain in Washington at bbain2@bloomberg.net.
To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott
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