Calpers plan calls for ‘removing dual class, classified, or plurality voting structures’
Calpers, the largest pension fund in the US, is considering a series of corporate governance standards including avoiding IPOs with dual-class structures that give greater rights to certain shareholders.
The $237 bn pension fund is also considering strategies that would build support against dual class structures and against a rising trend to confidential IPO filings under the Jumpstart Our Business Startup (JOBS) Act, which eases some regulations for small businesses, according to Calpers meeting notes.
‘Several significant events in 2012 related to companies seeking capital from investors through initial public offerings have resulted in a spotlight being focused on poor corporate governance structures,’ according to the August 13 agenda of the Calpers investment committee meeting, under the sub-heading ‘IPO Governance Expectations’.
Calpers is considering a plan that would ‘seek an improvement in either the initial valuation or long-term or future long-term stock price performance of private companies that become public corporations through the adoption of corporate best governance practices,’ the agenda states.
The plan will seek, among other points, to ‘address core governance standards of accountability and transparency such as removing dual class, classified, or plurality voting structures’.
Calpers would also seek support for its stance from ‘our private equity partners, private equity industry associations and the investment banking industry’ and aim to build coalitions ‘including other global investors, outreach to fund managers and investor forums and networks to which Calpers is a member’.
Action could include ‘an equity trading strategy that does not provide capital for IPOs which do not meet Calpers governance expectations,’ according to the agenda.
The main lapses in good governance concerning IPOs this year cited by Calpers include a trend toward dual class voting structures, increasing confidentiality under the JOBS Act, and a move by Carlyle Group in its IPO seeking to prevent shareholders from resolving disputes with the company through the legal system.
Recent IPOs with multiple-class voting structures include Facebook’s offering, which leaves Mark Zuckerberg with voting control on a minority of shares, this month’s IPO of Manchester United, and a host of tech IPOs from Groupon to Zynga.
An analysis earlier this month by Renaissance Capital also showed a rising trend toward confidential IPO filings under the JOBS act, and away from public filings.
According to the study, the number of public filings in the four months after the JOBS Act was signed fell by more than 70 percent in the same period of 2011.
Renaissance said ‘it is almost certain’ that the number of confidential filings has continued to outpace public filings.
‘Ultimately, it appears as though the JOBS Act will create a new normal, where the ‘shadow’ pipeline of confidential filings is as big as or larger than the publicly disclosed backlog,’ Renaissance wrote.
