ICEV: One share, one vote – the bedrock of good corporate governance

Railpen regularly works with or develops collaborative engagements where increased action is necessary to drive positive beneficiary outcomes. So, in 2022, Railpen, the Council of Institutional Investors (CII) and several US pension funds launched the Investor Coalition for Equal Votes (ICEV) to challenge unequal voting rights in the US and UK.

Caroline Escott / 25 July 2023

Railpen manages investments on members’ behalf and has a duty to engage and collaborate in a meaningful way to drive positive financial outcomes for them. One of the ways we do this is by speaking with the companies we invest in about their corporate governance (how well the company is managed). We believe it’s essential that all shareholders are given a fair and proportionate voice through their voting rights. Being able to vote for, or against, a company at its Annual General Meeting (AGM) helps us positively influence a company’s behaviour and provides a safety net to hold company management to account, where necessary.

So, in 2022, Railpen, the Council of Institutional Investors and several US pension funds joined together to set up a collaborative engagement initiative called the Investor Coalition for Equal Votes (ICEV) to promote the adoption of capital structures to ensure that equity positions with substantially similar economic rights provide identical voting power on a share-for-share basis (Equal Voting Rights).

Today, ICEV is made up of a group of US and UK pension funds with over $2tn in assets (and growing) – all of whom share the same concern, namely the long-term effects of misalignment between invested capital and shareholder voting rights, and the consequences for long-term financial performance and good member outcomes.

Why are we concerned about unequal voting rights?

Some companies operate with multiple classes of shares where the owners of certain share classes, typically founders or insiders, benefit from superior voting rights at a level disproportionate to their equity shareholding. This is most commonly seen with founder-led companies that publicly list with a capital structure with higher voting rights per share for the founder relative to other public equity investors.

We believe strongly that when a company taps the capital markets to raise money from public investors, those investors – as owners of the company – should have a right to vote in proportion to the size of their holdings (and in proportion to the economic risks that they bear as owners). 

 

ICEV's mission

We leverage our combined knowledge and expertise to challenge the entrenched and material problem of unequal voting rights in an intentional and considered way so that companies operate with a fairer 'one share, one vote' structure.

We believe that this will influence long-term financial performance for the better and drive positive financial outcomes for members of pension schemes.

A single class of common stock with equal voting rights provides the voting mechanisms to ensure the board of directors remain accountable to the majority of the shareholders. This accountability is vital to ensuring that the board – and by extension the management of the company – remains aligned with the interests of the shareholders.

Boards cannot carry out their fundamental oversight purpose if capital structures are designed specifically to render founders, their favoured board members, and their favoured managers, unaccountable to the holders of a majority of outstanding shares.

ICEV’s concerns are supported by a body of empirical research that shows that any benefits of a capital structure with unequal voting rights decline after a period of public listing. The research shows that over time, on average, firms with unequal voting rights are undervalued relative to their peers with a ‘one share, one vote’ structure at the time of going public, and relative to those with time-based sunset provisions.

 

How does the ICEV pursue its mission?

ICEV encourages companies entering the public markets to consider adopting a ‘one share, one vote’ capital structure, or at the least to incorporate time-based sunset provisions of seven years or less into their governing documents at the time of going public. We do this by:

  • Organising virtual (or in person, where relevant) engagements with pre-IPO companies, their counsel and advisors, and other financial market participants.
  • Supporting the advancement of equal voting rights regulation and legislation where practicable and most effective.

Who are ICEV's members?

ICEV membership is available to long-term institutional investors, including asset owners and asset managers, as well as investor-governed, non-profit organisations that support the mission of ICEV and commit to actively participating in ICEV’s pursuit of its mission. There are no regional or jurisdictional limitations on membership eligibility. ICEV members currently include the following:

  • Railpen (Chair)
  • Council of Institutional Investors (Vice-Chair)
  • California State Teachers' Retirement System (CalSTRS)
  • Ethos Engagement Pool International
  • Ethos Foundation
  • Florida State Board of Administration
  • Fulcrum Asset Management
  • Los Angeles County Employees Retirement Association (LACERA)
  • Minnesota State Board of Investment
  • NEST
  • New York State Common Retirement Fund
  • Office of the New York City Comptroller
  • Ohio Public Employees Retirement System
  • People's Partnership
  • Washington State Investment Board
  • Wespath Institutional Investments
 

Become an ICEV member

To join the coalition or find out more about membership, please contact Caroline Escott, Railpen, at caroline.escott@railpen.com and / or Glenn Davis, Council of Institutional Investors, at glenn@cii.org

 

Antitrust disclaimer

In line with ICEV’s Antitrust policy, the responsibility lies with each of the individual ICEV members to understand and adhere to all laws and regulations applicable to them. This includes, but is not limited to, relevant antitrust and competition laws.

ICEV members explicitly avoid coordinating on company-specific investment decisions, meeting-specific proxy voting decisions or any other business-related decisions. ICEV’s members are responsible for their own investment, voting and business decisions and must always act completely independently to set their own strategies, policies and practices based on their own best interests.

ICEV facilitates the exchange of public information, but members must avoid the exchange (including one-way disclosure) of non-public, competitively sensitive information, including with other members and participants in engagements.

Research report – Undermining the Shareholder Voice: The rise and risks of unequal voting rights

In a report published in November 2023, ICEV makes recommendations to support the phase out of dual-class share structures. Tailored to different financial market participants, these recommendations are as follows: 

    COMPANIES

  1. Adopt single-class share structures at IPO or as soon as possible thereafter
  2. Adopt explicit time-based sunset clauses for any dual-class share structures of no more than seven years from the date of public listing, at which time the company reverts to a single share class
  3. If sunset clauses are not adopted, adopt provisions that require periodic approval, at least every seven years, from a majority of each share class voting separately, for the dual-class share structure to continue
  4. Adopt supplemental safeguards for pivotal proposals 

    COMPANY ADVISERS

  1. Fully inform clients contemplating dual-class structures of the risks associated with them and why they are opposed by long-term investors
  2. Ensure that, where the structures are used, time-based sunset clauses are embedded in the governing documents pre-IPO

    INVESTORS

  1. Publicly oppose dual-class share structures, and adopt formal advocacy, engagement and voting policy decisions to that effect
  2. Work with market participants including companies, policymakers, stock exchanges and index providers to adopt policy measures that discourage the adoption of these structures
  3. Engage with pre-IPO companies and their advisers to explain the benefits of equal voting rights
  4. Use all stewardship tools at their disposal to urge companies with dual-class structures to explore the benefits of recapitalisation to restore equal voting rights

    STOCK EXCHANGES AND INDEX PROVIDERS

  1. Adopt listing standards and methodologies which discourage the use of dual-class share structures
  2. Require companies with dual-class share structures to have time-based sunset clauses or to periodically obtain majority approval from each class – voting separately - for the structure to continue
  3. Ensure that any dual-class companies they admit to listing or index inclusion is clearly identified as having dual-class share structures

    POLICYMAKERS AND REGULATORS

  1. Recognise the evidence on the negative impacts of dual-class share structures and take steps to discourage companies from listing with these structures, unless it is with a sunset clause and includes robust investor protections
  2. Take interim steps, in advance of more comprehensive market reforms, towards enhancing transparency from companies that list with dual-class share structures

Read the full report: Undermining the Shareholder Voice - The rise and risks of unequal voting rights

Useful links

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