Views on improving the integrity of global capital markets
08 March 2017


Posted In: Proxy

Thank goodness a public company has found a solution to avoiding that pesky Institutional Shareholder Services, known to everyone as ISS, a somewhat notorious purveyor of proxy voting advice that public companies love to hate. ISS analyzes proxy voting issues and gives recommendations on to how to vote to huge public pensions, mega mutual fund companies, and other large institutional investors. One estimate placed their control at over 50% of the votes in almost all proxy matters proposed by S&P 500 Index companies. Although they do not actually control any votes, clearly their advice can and often does tip the balance on many proxy voting issues.

The public companies that hate ISS invariably described them as shoddy, inaccurate, and even pernicious in the way they manipulate the proxy scene. ISS has so incensed some companies that they’ve directed their corporate lobbyists to put significant pressure on the SEC to closely regulate such activities. That pressure may resurface under the new Administration. At nearly every corporate governance event I have attended in the past decade, the power and alleged undue influence of ISS comes up. They and their ilk have been roundly criticized by various corporate participants for decades now.

Finally, however, the parent company of the social media messaging service Snapchat, which is built around a disappearing message and photo-sharing app, has found a path to reducing, or potentially even eliminating, their role. The solution is to simply issue public common shares that have no voting rights at all. Using the ultimate filter, Snap Inc. seeks to conduct its IPO on the NYSE with completely non-voting common stock.

According to the S-1 registration statement, which is filed with the SEC for these IPO transactions, ticker SNAP will have three classes of common stock: A, B, and C. Here is what the S-1 Registration says: Our two co-founders have control over all stockholder decisions because they control a substantial majority of our voting stock. The Class A common stock issued in this offering will not dilute our co-founders’ voting control because the Class A common stock has no voting rights.

This is not the work of an obscure company regarding low-volume, preferred-shares. This affects the primary equity security offered to institutional and mom and pop investors on a major exchange for a firm that expects to raise over $3 billion for a total market capitalization topping $18 billion.

Brilliant! Class A shares—the only ones being sold to public investors in Snap Inc.’s IPO—come with zero voting rights. Psssst…. instant ISS repellant.

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Photo Credit: ©Getty Images/Peter Macdiarmid 


About the Author(s)
Kurt Schacht, JD, CFA

Kurt Schacht, JD, CFA, is the Senior Head, Advocacy Advisor, Capital Markets Policy at CFA Institute, where he oversees advocacy efforts and the development, maintenance, and promotion of the highest ethical standards of practice for the global investment management industry.

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