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Rep. Meeks’ Bill to Enhance Disclosures for Investors About Corporate Insiders with Outsized Voting Power Passes Committee

July 11, 2018
Press Release

Washington, DC – Today, a bill introduced by Rep. Gregory W. Meeks to improve disclosures around companies with entrenched corporate governance structures passed the House Committee on Financial Services, of which Rep. Meeks is a senior member. 

The Enhancing Multi-Class Share Disclosures Act (HR 6322) directs the Securities and Exchange Commission to issue a rule requiring companies with multi-class shares to better disclose the outsized voting power their corporate insiders may have relative to their shares.  The bill was passed unanimously.

Rep. Meeks delivered the following statement during the bill’s markup:

Mr. Chairman, I want to thank you for including HR 6322 within today’s markup and for your input.  I want to thank Ranking Member Waters for her and her staffs’ support in crafting this language.

The Multi-Class Share Disclosures Act is both timely and necessary to close documented gaps in transparency around multi-class governance structures.

These structures – while they may add value – pose significant risks, making sunlight ever more important for investors.

Multi-class governance structures are those where corporate insiders or beneficial owners retain an outsized amount of voting power relative to their shares.  These structures may pose significant risks for investors, including limiting investors’ abilities to influence management, direct strategy, and hold misaligned boards accountable. As we’ve seen, these structures could also potentially lead to companies being de-listed. 

As the SEC’s Investor Advisory Committee found, despite significant risks associated with multi-class governance structures, the disclosure regime around such arrangements is simply not sufficient.

Under current rules, the difference between a corporate insider’s voting power and their ownership interest – regardless of how large that gap may be – is often disclosed in ways that are difficult for an ordinary investor to fully comprehend.

Accordingly, the Investor Advisory Committee recommended that the SEC amend its rules to ensure that this gap is better identified and quantified for investors via a disclosed ratio.

This commonsense bill adopts this recommendation to ensure investors have the clearest information available to make the best decision for themselves.

Let me end by noting that multi-class governance structures have their value. 

While reforms may be necessary, their outright ban would do little for Main Street investors looking to gain return on the next startup that chooses to go public. 

We’ve seen companies like Facebook and Google use multi-class governance structures as a way to access the public markets, open their profits to Main Street, while also retaining the vision and direction of their founders.

Main Street investors should not have to miss out on such opportunities.  However, at the core of a well-working capital markets system is information, and more robust information is always best for investors. 

This bill will ensure Main Street has the best information, while retaining their access to tomorrow’s successful startups.