Exchanges Urged to Require One-Share, One Vote

By Cydney Posner

Senator Elizabeth Warren (D-MA) has sent a letter to the NYSE and NASDAQ urging these organizations to take action on the proposal from the Council of Institutional Investors to require "one share, one vote" corporate structures for listed companies.  As you may know, it's become fairly common practice for companies conducting an IPO to set up a corporate structure with Class A/Class B common. One class, typically help by founders and management, has ten to one voting rights, which generally allows that class to control the outcome of voting on most matters submitted to stockholders. Because the prevalence of unequal voting rights has increased, if adopted, the proposal could have a significant impact on current practices.

The proposal would make companies that seek an initial listing ineligible if they have two or more classes of common stock with unequal voting rights and prohibit already listed companies from issuing additional classes of common with unequal voting rights. Warren argues that, with unequal voting rights, ordinary investors, including workers and retirees, "have limited recourse in holding management and the board accountable if the company heads in a wrong direction. In addition, unequal voting helps entrench management and a board that can enrich themselves at the expense of the general investors." She notes that many mutual fund providers, such as Fidelity and Vanguard, oppose the introduction of new classes of stock with unequal voting rights.

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