August 31, 2017

Survey Results: Board Approval of Form 10-K

Here’s the results from our recent survey on board approval of the 10-K:

1. When it comes to approving the filing of the Form 10-K with the SEC, our company’s full board:
– Convenes telephonically to approve it – 48%
– Relies on the audit committee to convene telephonically to approve it – 48%
– Management already has the board’s power of attorney to sign the 10-K, so there’s no audit committee or board meeting to approve it – 5%

2. When our directors are given a chance to comment on a draft of the 10-K, we typically receive back:
– No substantive questions or comments – 21%
– 1-2 substantive questions or comments – 43%
– 3-5 substantive questions or comments – 21%
– More than 5 substantive questions or comments – 15%

Please take a moment to participate anonymously in our “Quick Survey on Pay Ratio Medians” – and our “Quick Survey on Director Compensation.”

Dual-Class Structures: Does the Market Already Have a Fix?

Liz recently blogged about the decision of major indices to exclude “dual-class” companies that offer minimal voting rights to public shareholders. The debate about dual-class companies continues to rage – but this recent study suggests that the market may already have a solution, in the form of investors’ demand for a “risk premium” for these stocks. Here’s the abstract:

Critics advocate eliminating dual class shares. We find that founding families control 89% of dual class firms, potentially confounding economic inferences regarding limited voting shares. To identify the impact of dual class structures on outside shareholders, we examine stock price returns; finding that dual-class family firms earn excess returns of 350 basis points more per year than the benchmark.

Institutional owners garner a disproportionate fraction of these returns by holding over 97% of their floated shares. Overall, we show that investors demand a risk premium for holding dual-class family firms, suggesting a market-driven resolution to concerns about limited voting shares.

If the study’s right, these above-market returns may go a long way to explaining why – despite their harrumphing – institutions continue to throw money into these stocks.

Meanwhile, this LA Times article notes that tech companies are not likely to bow to S&P’s new dual-class rules…

Nasdaq to Dual-Class Companies: “We’ve Got Your Back”

The major indices may have “unfriended” dual-class companies like Snap, but this “Institutional Investor” article says that Nasdaq remains happy to provide a home for them.  Here’s an excerpt:

Nelson Griggs, head of global listings at the Nasdaq Stock Market, said Nasdaq supports companies that want to go public with a dual-class structure, as long as investors know what they’re getting into.  Companies often use multiple share classes – each with different voting rights – to help founders and CEOs maintain control or as a tool to fend off activists. Technology and media companies have been among the biggest users of multiple share classes.

“In the U.S., if companies disclose that they have multiple share classes, then investors can make a decision on whether they want to be a financial owner,” said Griggs. “We think it’s in the best interests of companies to have that option.”

With fewer companies going public, new listings are hard to come by – and companies with dual-class structures represent 10% of Nasdaq’s listings.  That’s up from 2% a decade ago.  You do the math.

John Jenkins