Norway Wealth Fund Wants to Exclude Voteless Shares From IndexesBy
Fund backs growing calls for index exclusion after Snap IPO
Voting is key for fund, which has most holdings via indexes
The world’s biggest sovereign wealth fund is adding its voice to calls to exclude companies with non-voting shares from key indexes, in a push that’s intended to improve corporate oversight.
As part of a discussion sparked by the voteless initial public offering of Snap Inc., the $960 billion Norwegian wealth fund says it backs a plan to place a “zero investability weight” on companies with no listed shares with voting rights.
“Society benefits when companies are well run and asset owners take their ownership responsibility seriously,” Yngve Slyngstad, the chief executive officer, of the fund, said in an emailed comment to Bloomberg. “Voting is an important tool to secure good corporate governance and ensures that asset owners are able to make the board accountable and ensure long-term value creation.”
Norway’s wealth fund is becoming increasingly activist in its approach to investing, with a particular focus on corporate governance issues and voting. It has attacked excessive CEO pay and refuses to invest in companies that fail to live up to its environmental and ethical standards. Because the fund largely follows indexes when it invests, the ability to influence companies by voting is key to its strategy. It doesn’t hold shares in Snap.
Snap, which owns the Snapchat app, sold $3.4 billion of non-voting stock in its IPO in March, becoming the first firm to go public without giving owners a say in its business. In part due to concerns over voting rights, the company had to scale back its expectations for how much money it would make in the IPO. Regulators should be “mindful” of the precedent around voting rights that was set by the firm’s offering, said Kara Stein, one of the Securities and Exchange Commission’s two members, on March 9.
Norway’s wealth fund said it will back the introduction of a minimum threshold based on the ratio of the company’s voting rights, as suggested by FTSE Russell. Failing to meet that floor would mean a reduced weighting, it said in a letter signed by Petter Johnsen, the fund’s chief investment officer for equities, and Jonas Jolie, its head of policy development.
“When setting the threshold, FTSE Russell could take into account the ability of shareholders to exercise formal influence, perhaps with an added headroom,” they said in the letter obtained by Bloomberg.
It advised against making the threshold too hard to meet, since that could mean new companies would place themselves close to the threshold.
“We would prefer to maintain an incentive for all constituents to give shareholders additional voting rights, by scaling index weight according to voting power throughout the range of the latter,” they said.
The fund said these rules should be grandfathered.