Today Ranking Digital Rights sent a letter to the U.S. Securities and Exchange Commission (SEC) urging the agency to ban multi-class share structures and to repeal SEC rules that limit the ability of investors to file and resubmit shareholder resolutions. These two practices undermine investors’ ability to address corporate wrongdoing and shift an unacceptable amount of risk onto the public.
Our letter calls on the SEC to:
End multi-class share structures: Unequal voting structures disenfranchise shareholders, hitting those who call for action on human rights especially hard. The SEC should eliminate these structures entirely, prioritizing companies under “bad actor disqualification” provisions, then newly listed companies, and finally existing companies. It should also require companies to disclose how their stock structures impact corporate governance.
Repeal SEC rules that hinder shareholder action. The 2020 rule changes disproportionately target small stockholders and bury important proposals. The SEC must rescind its rules that restrict participation according to stock ownership (which marginalize small shareholders), that raise the thresholds of support needed for shareholders to resubmit proposals, and that limit shareholders’ ability to build coalitions.
In recent years, the SEC has overseen strong growth in the number of companies that deliberately dilute (or eliminate, in some cases) shareholders’ voting rights when going public. Rather than adhering to the standard of issuing one vote per share, companies are opting to institute dual- or multi-class share structures, in which a special type of share—that only company insiders can own—is worth 10, 20, or even 50 votes. The purpose of these structures is to ensure that control of the company remains with insiders, even in the event of a shareholder vote.
Multi-class share structures can entrench irresponsible management, kill leadership’s incentives to talk to (and answer) the public, and crush investor votes for change. Five of the companies ranked in RDR’s 2022 Big Tech Scorecard are structured this way: Google’s parent company Alphabet, Meta, Yandex, Baidu, and VK.
The agency also has maintained a set of rules adopted in late 2020 that limit—and sometimes impede altogether—shareholders’ ability to participate in actions that determine the future of companies in which they invest. Facing little regulatory pushback, company executives have thus imbued themselves with power and immunity from standard corporate accountability mechanisms at previously unseen rates.
Alongside Ranking Digital Rights, signatories to the letter includes more than 20 human and civil rights organizations:
- Access Now
- Accountable Tech
- American Federation of Teachers
- Campaign for Accountability
- Center for Digital Democracy
- Coalition For Women In Journalism
- Fair Vote,Fight for the Future
- Foundation The London Story
- Defend Democracy
- Media Alliance
- Mnemonic
- OpenMedia
- Open Technology Institute
- Real Facebook Oversight Board
- The Signals Network
- Open MIC (Open Media and Information Companies Initiative)
- Public Citizen
- SumOfUs
- Taraaz
- United Church of Christ Media Justice Ministry
Our organizations’ missions center on protecting human and civil rights in the digital age, hence our emphasis on the tech sector, but we are concerned about barriers to shareholder advocacy and good corporate governance in all sectors of the economy.
Read the letter for more details on these demands.
