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Major Canadian PRI signatories buy Palantir’s controversial non-voting shares

Named after a crystal ball in Lord of the Rings, some are concerned that Palantir offers fictional shareholder rights

The Canada Pension Plan Investment Board (CPP Investments), the country’s quasi-sovereign fund, and the Public Sector Pension Investment Board (PSP) are among the top shareholders of the controversial security contractor, Palantir Technologies, after its recent IPO.

Palantir, a former Silicon Valley startup whose main revenue comes from cybersecurity contracts with government and spy agencies, went public by the end of September. It recently relocated to Denver, Colorado. 

Often described as “opaque”, “secretive” and “controversial”, Palantir’s software reportedly played an instrumental role in the US National Security Agency spy scandal, exposed by whistleblower Edward Snowden. The firm’s name is derived from JRR Tolkien’s Lord of the Rings, in which a palantír is an all-seeing crystal ball.

Its IPO has also sparked controversy in governance terms, as investors who buy the stock will have virtually no voting power. Palantir has designed a complex triple-class shares arrangement, including F shares, which shield the controlling founders from shareholder attempts to hold board and management accountable. See S-1 Form.

There are concerns that such a share structure impedes basic stewardship responsibilities and puts investors at odds with Principle 2 of the Principles for Responsible Investment: ESG-led active ownership policies and practices.

This hasn’t stopped a number of PRI signatories from becoming shareholders in Palantir, however. CPP Investments and PSP, which run C$434.4bn (€277.8bn) and C$169.8bn respectively, are both signatories to the UN-backed body. Both declined to comment. 

Industry sources told RI that CPP Investments held Palantir long before its IPO, and as a private equity shareholder might have voted against a lot of the company’s practices.

Governance structures like Palantir’s raise legitimate questions about how responsible investors should act – Paul Chandler

Other PRI-signatories holding Palantir are BlackRock, Vanguard and T. Rowe Price. They declined to comment on issues affecting individual companies.  

Palantir did not reply to a request for comment.

Eaton Vance, owner of responsible investment firm Calvert, told RI that its Enhanced Equity Income Fund (EOI) had a 1% position in Palantir as of 31 October.

A spokesperson said: “As an Eaton Vance Fund, EOI is not subject to the Calvert Principles for Responsible Investment.”

The spokesperson explained that Eaton Vance considers financially material ESG factors as part of its research process and, while such factors may be taken into account in its securities selection process, they might not drive the final investment strategy.

The spokesperson added: “As you know, Calvert is an affiliate of Eaton Vance, but the funds are governed by different prospectuses.”

Paul Chandler, PRI’s Director of Stewardship, told RI that governance structures like  Palantir’s raise legitimate questions about how responsible investors should act when considering investing under such circumstances.

“Of course, many PRI signatories may have adjusted their investment weightings to reflect the governance situation at Palantir, or even decided not to invest at all,” he said. “But we should be clear that this is not enough to address the broader problem. In the long-run, structures like this undermine the functioning of our markets and introduce risks in other areas.”

He added: “We would encourage investors who are committed to good governance and responsible investment to use their voice to advocate more forcefully for the governance standards needed to protect shareholder value and the long term interests of beneficiaries.”

According to former MSCI ESG analysts Matt Moscardi and Damion Rallis, co-founders of consultancy Free Float Media, Palantir falls under the category of “fake public companies” because of the absence of traditional shareholder rights. 

“Even if you ignore the business model with its privacy implications, you can't influence the board,” added Moscardi.

Of the six board seats, four are internal directors, including co-founder and CEO Alex Karp. Peter Thiel, also a co-founder, chairs the board.