Learning Dual Class Shares – Dual shares under the spotlight
There could be a huge wake up call for many institutional investors who like to filter their cash into dual class share structures due to individual shareholder dissent fired up rumors of it all at the top of news corp. The United States media groups well known two tier structure which allows the Murdoch family to remain in control of forty percent of the companies voting rights whilst only holding twelve percent of the equity stated today that despite independent shareholders collectively voting against the re-election of Rupert Murdoch and his family failed to make any positive movement in their attempt to oust him at the annual general meeting.
The question now has to be asked about why institutional investors comprising of pension funds are exposing themselves to a huge governance risk with full knowledge of where it could take them. There are a large amount of institutional investors who are now speaking out about the fact they do not like dual share structures in addition to small companies with free floats which they would like to exclude from their current portfolios. One of the biggest investors in news corp is the California public employees` committee retirement system or Calpers who own approximately seven million shares with an estimated worth of over one hundred and twenty million dollars.
The senior portfolio manager of investments Anne Simpson believes the two tier structure is in fact a corruption of the governance system. She has also stated that she would like to see the roles of chairman and chief executive at news corp which are currently held by Rupert Murdoch split in accordance with the best practice of governance. One of the main reasons Calpers invests in structures of this type is to expose growth and liquidity. Miss Simpson also stated that the liquidity on non voting shares in news corp is much higher than the actual voting shares. She has also pointed out that a large amount of the companies which are included within major indices have dual class share structures, if we were to exclude these large amount of companies would have an overall result of limiting the companies future growth.
Corporate governance group Pirc have taken a strong stance against dual class share structures but at the same time recognize that they cans still allow maximum exposure to certain companies. Pirc would like to see listing rules changed or reviewed as well as closer scrutiny on whether companies in either category need additional safeguards. Plans are also being drawn up by Calpers to dig into corporate governance in the next few years. Miss Simpson stated we are embarking on a new root and branch review of how we should integrate governance issues into everyday business life. We also need to be more aware of environmental and social investment strategies which ultimately will give us sufficient growth and more intelligent exposure.