Companies whose shares have unequal voting rights are likely to have their inclusion on indexes owned by the London Stock Exchange restricted in a bid to address concerns over falling standards of corporate governance.
FTSE Russell, the world's largest compiler of stock indices, launched in June a consultation process with investor groups, clients and company chiefs that could lead to a minimum threshold for voting control of shares listed on its indexes.
Mark Makepeace, FTSE Russell chief executive, told Reuters on Wednesday that the company was "leaning towards" setting a minimum threshold, but discussions were ongoing and nothing had been decided yet.
He said: "Seventy percent of respondents believe voting rights matter and that some minimum threshold with respect to voting rights ... should be set, so it's likely that companies without some proportion of non-restricted shares will be excluded."
Dual-class share system
Many companies operate a system with two types of shares - dual-class - which allow the holders of non-traded stock, often company founders and directors, the major influence over company decisions.
Most commonly, the non-traded shares will each carry a greater percentage of votes to the free-float shares.
Such share structures have come under increasing attack as concerns over standards of corporate governance are highlighted by investor activist groups and funds.
It allows company insiders, who own the majority voting rights, to make decisions on strategy and executive pay without effective opposition.
Snap goes triple-class
Snap, the recently US-listed internet company, came under criticism for issuing three classes of shares:
- A-shares, listed on the New York Stock Exchange which are non-voting
- B-shares, which are unlisted and held by management and carry a single vote
- C-shares, unlisted and held by the two co-founders and carry 10 votes a share - representing nearly 90% of the total vote
Calls for stock exchange reform
Public company advisory group Weil said in a recent note on governance and securities that Snap's IPO had reinvigorated investor calls for stock exchange reform of listing standards.
Although the dual-class share system has its critics, defenders of the structure say that it acts as a protection against the stock market's growing short-termism.
Founders and directors, they say, have a longer-term vision that goes beyond investor calls for cash returns and other short-term, but costly strategies.
The US is also taking note. Kara Stein, commissioner at the Securities and Exchange Commission, the US market regulator, said: "Voting rights have been a foundational component of sound corporate governance."
She added: "Unequal voting rights present complex and new issues that need to be understood and addressed."