CorporateDIrect FullLogoWhiteLetter

You Can’t Vote On Us
Do As I Say, Not As I Do

Hypocrisy: A pretense of having some desirable or publicly approved attitude.

The media and tech elite in America lecture us that our voting system is unfair, easily colluded with and leaves millions of people disenfranchised.

Those words clearly describe the voting systems within their own corporations. Of course, when you control the flow of information duplicities go unnoticed. Unless you are a large pension fund with fiduciary duties.

The New York Times, CBS, Viacom, News Corp (Fox News), Google, Facebook and others all use corporate structuring strategies to limit shareholder voting and input. The right to vote for a board of directors is an important right of corporate share ownership. But the geniuses running these companies know better than mere shareholders.

By using two or three classes of stock with different voting rights per class, founders and management can maintain control.

For example, Viacom owns Paramount Pictures, Comedy Central, Nickelodeon, BET, VH1 and NTV, among other valuable media assets. The Redstone family owns 10% of the total outstanding shares through their Class A shares. Most outside investors hold Class B shares. Class A shares hold 80% of all the votes to elect a board of directors. So with 10% ownership the Redstones have 100% control of Viacom. Similarly, Facebook founder Mark Zuckerberg maintains voting control without having to deal with a majority of the owners.

Does this benefit the other majority shareholders? Are the Redstones and Zuckerbergs always right?

Defenders of unequal voting rights argue that founders and management need the ability to make decisions that are tough in the short term but result in long term gains. They decry Wall Street’s focus on quarterly short-term performance instead of year to year, decades long execution. But this is a shallow argument. Pension funds and key institutional investors are also focused on long term success. They will certainly bless solid and fair strategies for the future.

With entrenched management comes skewed incentives, which always benefit the insiders at the expense of shareholders. With a minority of the shareholders controlling a majority of the voting, the voices of opposition, much less reason, are not heard. In the political world they refer to this in abstract theory and sometimes practice as the tyranny of the majority. In the corporate world it is the tyranny of the minority day in and day out within the media and tech giants of America. As a shareholder you are required to ignore the people behind the curtain.

A 2016 study prepared by the Investor Responsibility Research Center found that multi class voting corporations came with weaker corporate governance and higher CEO pay.

So, of course with such evidence, the next trend is to offer shareholders no voting rights at all. Snap, Inc. just completed one of the largest tech IPO’s in history. Purchasers of shares received no voting rights in the corporation.

The California Public Employees’ Retirement System (Cal PERS) is the largest public pension fund in the country. They have a difficult job. State and local politicians have promised generous retirement benefits to California’s public employees. But they haven’t properly funded the system. Cal PERS is one trillion dollars (yes, with a ‘t’) short on what has been promised. So they have to be very careful on how they invest. They have fiduciary duty to the retirees and they can’t be losing money.

Cal PERS is very critical of Snap’s structure whereby public shares have no right to vote. Said a Cal PERS spokesperson of Snap shares: “I think you have to relabel this junk equity. Buyer beware.”

Over the last ten years, corporations with multiple classes of stock and unequal voting rights have seen more than their share of management scandals and securities violations. Better shareholder returns are seen where companies allow for greater shareholder involvement. Before investing, research a company’s corporate governance structure. Buyer Beware.

And recognize the hypocrisy of media and tech elites that scold America on unfair systems. They need to be questioned first and foremost on the inequities within their own home base organizations. Wealth inequality actually starts on their doorstep.