The SEC’s Investor Advisory Committee made a number of recommendations to the Division of Corporation Finance, principally aimed at enhanced disclosure requirements, related to dual class structures. Specifically, Committee recommends that the Division:
- Require public companies that have dual class or other entrenching governance structures to prominently and clearly disclose: the numerical relationship between the amount of common equity or its equivalent economic beneficial ownership interest held by any person entitled to control or direct the voting of five percent or more of shares entitled to voting rights in the election of directors or the equivalent body (“ownership interests”), and the amount of voting rights held or controlled by such a person (“voting rights”), which the Committee refers to as “wedge” disclosure risks arising from the dual class structure and the inherent conflicts of interest; and risks arising from the exclusion of the stocks of companies with dual class structures from certain broad-based indices;
- Monitor shareholder disputes arising out of non-traditional governance structures to identify trends, especially those arising from conflicts of interest; and
- For issuers of non-voting stock, consider adding disclosure requirements to Form 10-K that would provide all information equivalent to that ordinarily included in a Schedule 14A, to the extent of the Commission’s authority.
In the meantime, the FTSE Russell is once again reviewing the inclusion of non-voting or minority voting shares in its indices. Voting-based bans from index inclusion have generated some controversy with some, including SEC representatives, suggesting that governance by index rules may itself be problematic.