Shareholders request that our Board take all practicable steps in its control to initiate and adopt a recapitalization plan for all outstanding stock to have one vote per share. We recommend that this be done through a phase-out process in which the board would, within seven years or other timeframe justified by the board, establish fair and appropriate mechanisms through which disproportionate rights of Class B shareholders could be eliminated. This is not intended to unnecessarily limit our Board's judgment in crafting the requested change in accordance with applicable laws and existing contracts.
In the company’s dual-class voting structure, Class B stock has 10 times the voting rights of Class A. As a result, the co-founders together own less 11% of shares but control over 48% of the shareholder vote. These facts raise concerns that the interests of public shareholders may be subordinated to those of the co-founders.
Shareholders have long been concerned by Mr. Dorsey’s growing fascination with cryptocurrency which arguably works against the company’s stated purpose of “economic empowerment.”
Economist and Senior Fellow at Brookings Institution Eswar Prasad explains that “rather than truly democratizing finance, [innovations like cryptocurrency] may exacerbate inequality. Unequal financial literacy and digital access might result in sophisticated investors garnering the benefits while the less well off, dazzled by new technologies, take on risks they do not fully comprehend.” As a speculative investment that “has no intrinsic value and is not backed by anything,” the risks of investing in cryptocurrency are particularly high for underserved communities – the same communities the company professes to serve.
The proponent’s concerns were solidified when Square announced a name change to Block in December 2021 – an apparent escalation towards cryptocurrency that shareholders had no opportunity to weigh in upon. The proponent believes the insulation of the CEO and Board of Directors due to the company’s multi-class share structure eliminates opportunities for substantive input from shareholders and exacerbates governance risk.
A variety of corporate governance experts illustrate a growing concern about multi-class share structures:
• As of July 2017, the S&P Dow Jones Indices announced that certain indices will no longer add companies with multiple share class structures;
• The executive director of the Council of Institutional Investors (CII) has stated that “multi-class structures … rob shareholders of the power to press for change when something goes wrong” and recommends a seven-year phase-out of dual class share offerings;
• The Council of Institutional Investors (CII) recommends a seven-year phase-out of dual class share offerings. The International Corporate Governance Network supports CII’s recommendation “to require to a time-based sunset clause for dual class shares to revert to a traditional one-share/one-vote structure no more than seven years after a company’s IPO date.”
• The Investor Stewardship Group recommends that “shareholders should be entitled to voting rights in proportion to their economic interest” and “boards should have a strong, independent leadership structure.”
How other organisations have declared their voting intentions