Lacking voting rights, Snap IPO to test fund governance talk

Fri Feb 3, 2017 6:15pm EST
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By Ross Kerber and Liana B. Baker

BOSTON/SAN FRANCISCO (Reuters) - Shares sold in a $3 billion initial public offering by the parent of Snapchat will lack voting power, testing the commitment of big asset managers in their recent fight for investor rights.

In a registration document on Thursday that it will use to pitch shares to investors, Snap Inc outlined an aggressive expansion plan for its social media network in what would be the biggest U.S. tech IPO since Facebook.

But the document shows the shares will not have voting rights - an unprecedented feature for an IPO despite years of rising concerns about corporate governance from fund managers looking to gain influence over executives.

Indeed, just earlier this week top fund managers including BlackRock Inc, Vanguard Group Inc and T Rowe Price launched an initiative to improve governance, among other things, calling for companies to give shareholders voting rights "in proportion to their economic interest."

Technically, the framework outlined by the group does not go into effect until the start of 2018, to give companies time to adjust.

But Charles Elson, a professor at the University of Delaware who follows corporate governance, said that to reinforce their message, the big fund managers should not buy into the IPO of Snap or others that might follow.

"They should not buy common stock without a vote," Elson said. That should even include index funds, which ordinarily buy shares to reflect the sector or group of stocks they track, he said.

For investors who do buy Snap shares without voting rights, Elson said, "You're completely hostage to the actions of management."   Continued...

FILE PHOTO - A portrait of the Snapchat logo in Ventura, California December 21, 2013. REUTERS/Eric Thayer/File Photo