Investor coalition advocates for ongoing protections against unequal voting rights in FCA proposals

The coalition, of which Railpen and the Council of Institutional Investors (CII) are founding members, was created to fight against unequal voting rights at portfolio companies, to protect investors and help them be effective stewards of capital. ICEV believes a “one share, one vote” listing requirement provides better investor protection on capital structure. In their response to the FCA’s DP 22/2: Primary Markets Effectiveness Review Discussion Paper, ICEV cites evidence that capital structures providing disproportionate voting rights to founders and other insiders can cause long-term performance issues.

The coalition notes that “the UK’s ‘USP’ as a destination for global capital is in large part the robust investor protections and historically high standards of corporate governance” and calls for the Premium Listing Principles, including the current limits on use of DCSS, to apply to all issuers of equity shares under any single segment regime. ICEV also calls for the prevention of further enabling of DCSS, without strict mandatory time-based sunset clauses.

The full published response can be found here.

Caroline Escott, ICEV Chair and Senior Investment Manager at Railpen said: “We are pleased that the FCA is minded to maintain existing Premium Listing protections around DCSS in any move to a single regime, so that shareholders can effectively hold companies to account. Active investor stewardship and ensuring shareholders have a voice in proportion to their economic ownership is vital to achieving good investor outcomes and ensuring the UK remains a trusted hub for global capital.

“We believe that differential voting rights dilute the ability of public shareholders to positively influence company management. Research shows that benefits of holding dual-class stock can decline over time and, over the long-term, companies with dual-class shares tend to be undervalued when compared with peers. The UK must continue to uphold robust investor protections and high standards of corporate governance to create and maintain long-term sustainable performance.”

Glenn Davis, Deputy Director at CII, added: “As conversations pick up globally among companies, their advisors and investors that sound governance ultimately has to involve alignment between equity and control, the ICEV supports the FCA’s approach for its consistency with that principle.”