Schroders has announced a proposal to enfranchise its non-voting shareholders, a move which will also reduce the principal shareholder group’s voting rights by almost 5 percentage points.
The firm said that the proposals, which must be approved by 75 percent of both voting and non-voting shareholders, would entitle all investors “who share the same economic rewards and risks” to have the same voting rights, as well as improving share liquidity.
The principal shareholder group, which comprises the Schroder family stake, currently holds 47.9 percent of ordinary share and 20.4 percent of non-voting shares, and has indicated its support for the proposal. Schroders also said that holders of more than 40 percent of non-voting shares have already indicated their support.
As compensation for the dilution of voting rights, investors who currently own voting shares will receive three additional shares per 17 already held. This will leave the principal shareholder group holding 43.1 percent of ordinary shares. There are 266 million ordinary shares and 56.5 million non-voting shares outstanding, with non-voting shares currently trading at a 37 percent discount.
Sarah Wilson, CEO of UK-based proxy adviser Minerva Analytics, said the news was a welcome development. “Contrary to the lobbying that has emerged from some parts of the US, families and founders can invariably rely on strong support from shareholders, which renders dual class/variable voting classes expensive and pointless. Entrenchment from accountability just doesn’t sit well with sustainable stewardship and sends the wrong message if your staff are trying to engage on these very same issues.”
Barclays analysts suggested in a broker note seen by RI that the simplification was a “clear positive”, adding that the move would see greater liquidity for the shares, as well as allowing their inclusion in indices and reducing governance concerns.
In December last year, the UK’s Financial Conduct Authority (FCA) confirmed a series of rule changes which would allow premium listed companies to establish dual class shares. The regulator said that the change would “encourage innovative, often founder-led, companies onto public markets, and so broaden the listed investment landscape for investors”.
UK investors have historically been hostile to dual class share structures, with retail investor body ShareSoc describing the FCA’s plans as “utterly misguided”. The structures can also undermine the effectiveness of stewardship and voting. A Morningstar report last year found that ESG proposals at Berkshire Hathaway and Facebook were prevented from passing by lopsided voting rights – including a proposal at Facebook to abolish its share structure, which received 90 percent support from independent shareholders.
At the time of writing, non-voting shares were up 31.2 percent while voting shares were down 1.4 percent.