Engagement as Independent Minority Shareholders in Controlled Companies with Unequal Voting Rights

There is an abundance of academic debate on ownership structures and shareholder returns, including arguments for and against the merits of founder- or family-controlled companies with unequal voting rights. However, there are certain challenges from an investor stewardship perspective for independent minority shareholders.

Issues of corporate governance, including minority shareholder rights, are often intertwined with environmental and social controversies, as many of these issues require the oversight afforded by good governance structures, which includes boards being able to respond effectively to shareholder concerns as represented by shareholder votes. Where votes are controlled disproportionately, most likely by founding executive officers who also wield significant and sometimes majority board influence through direct representation, companies might be less likely to respond to investor concerns on certain environmental or social issues. This is because the shareholder vote results, which invariably will be majority-supported and a reason used by some to legitimize the status quo, will not be reflective of independent shareholder voices when including control blocks. Even if such a company's board is significantly independent (beyond majority), the prospect of the controlling shareholders' votes being used to vote against and threaten an otherwise independent director's election may discourage directors from expressing dissenting views.

This is one reason why unequal voting rights through multi-class shares are uniquely problematic: this setup could foster governance structures and boardrooms where the mandate of oversight gets lost to the certainty of success when it comes to voting outcomes. Investors who take issue with unequal voting rights among multi-class share structures have long advocated for their collapse or sunset, and some have begun to vote against the directors of such companies. However, if investee companies have not been responsive, and shareholder vote results are not very impactful given the controlled status of the vote, then it is equally important for investors to advocate for measures which ensure that independent shareholder voices are heard. This can occur by ensuring that boards have formal avenues for responding to independent shareholder concerns, irrespective of the capital structure of the company.

What Can Independent Minority Shareholders Do?

There are certain requests that minority shareholders can present to investee companies controlled via unequal voting rights in order to address the issue of inaction when it comes to problematic multi-class share structures. These actions are not meant to replace what other market participants have rightly been asking for. Rather, they serve to complement an investor's existing actions on voting, engagement and advocacy.

An investor can ask investee companies how independent shareholder votes are considered at the board level, excluding the impact of controlling shares. Investors should know if the board is formally considering the impact of the independent shareholder votes in a timely manner. Investors should also understand if deliberations at the board level include discussions on how the company intends to respond to shareholder views expressed through their votes. A shareholder proposal receiving majority independent shareholder support or a director not receiving the requisite independent shareholder vote, despite receiving a majority of votes in support when including controlling voting blocks, should warrant and trigger the right discussions at the board level.

An investor can also ask investee companies to consider implementing and publicly disclosing formal policies, procedures or frameworks which outline how exactly the board intends to the take into consideration independent shareholder votes. This should include how the board calculates and reviews vote results after an annual meeting and there should be clear directives outlining what happens as a result. Let's say a company has a director elected via majority shareholder support inclusive of controlling shares but does not meet the requisite support levels when considering only independent shareholder votes. In that case, a hypothetical framework may be to assess the independent shareholder vote results at the board level, consider responsive actions within 90 days, if any, and/or disclose those details in the next year's proxy statement.

These formal policies or procedures, which can be adopted and disclosed by company boards, will hold companies accountable to, at minimum, reviewing the independent shareholder votes. It will also allow investors to initiate conversations about the types of actions that have resulted from what companies said they would do versus what they have done. For shareholder proposals that made it to the vote, unless a substantially similar proposal is filed in the following year where companies choose to include such additional information about how their boards have been responsive in their company response statement, companies are not even obliged to disclose the outcome of any board deliberations, considerations or responsiveness actions. Therefore, the adoption of a formal policy or procedure and its disclosure could help companies standardize the ways in which they respond to shareholder concerns, relay information internally to the board and disclose relevant information to investors.

¹“ISS-Corporate,” a unit of investment adviser ISS STOXX

本文所含信息由道明资产管理有限公司提供，仅供参考。信息出自我们认为可靠的来源。本信息并未提供财务、法律、税务或投资建议。具体的投资、税款或交易策略应根据每位投资者的目标和风险承受能力加以评估。

本文档中的部分陈述可能包含预测性的前瞻性陈述（“FLS”），其中包含“预计”、“预期”、“打算”、“认为”、“估计”和类似的前瞻性表述或其否定形式。前瞻性陈述基于当前对未来普遍的经济、政治、相关市场因素（例如利率和汇率、股票和资本市场）以及普遍经营环境的预计和预测，并假定不发生税法或其他法律或政府管制方面的任何变动或灾难事件。对于未来事件的预计和预测本身受无法预见的风险和不确定性的影响。此等预计和预测可能在未来并不准确。前瞻性陈述并非对未来表现的保证。实际发生的事件可能与前瞻性陈述明示或暗示的事件存在实质差异。包括上文所述各项因素在内的多个重要因素均可能造成这种背离。您不应在任何程度上依赖于前瞻性陈述。

道明资产管理有限公司 (TD Asset Management Inc.) 是道明银行 (The Toronto-Dominion Bank) 的全资拥有附属机构。

® TD标志和其他TD商标为道明银行或其子公司的产权。