The soaring ranks of groups with multi-class capital structures
Tenth of stocks by weight in MSCI World Index now boast unequal voting rights
The idea of “one vote, one share” has been a core principle of corporate governance for decades.
Just 30 years ago, less than 2 per cent of stocks that made up the MSCI World Index by weight had unequal voting rights.
But that changed in 2004, after Google came to the market with a dual share class structure that gave some investors more say than others.
At the time, about 4 per cent of the MSCI World index had unequal rights. But this increased fivefold to about 10 per cent by 2017 as many rival tech companies followed Google’s lead.
Now many of the world’s most famous companies, including Alphabet, Google’s parent company, Facebook and Warren Buffett’s Berkshire Hathaway, have unequal voting rights.
Often favoured by family-controlled companies or those set up by entrepreneurs, dual share classes typically allow founders more control over the business — something they say is vital for driving growth. But many investors complain that all shareholders should be treated the same, arguing unequal voting rights is bad for governance.
The rapid rise in dual share classes has caused concern among investors. Snap, the tech company behind the vanishing messaging app, caused huge upset last year after shareholders buying shares in its initial public offering were denied voting rights.
Investors are now putting pressure on index providers and regulators to address the issue.
But at the same time, stock exchanges in countries such as Hong Kong are introducing new rules to allow for the introduction of unequal voting rights, as they vie to win public offerings from big tech companies.
The structures are already common in countries such as the US, Canada, Sweden, Germany and South Korea, but largely absent from places such as the UK.