In my last blog post I criticised the suggestion in the UK Government’s Green Paper that perhaps dual share structures should be permitted so that we could develop companies such as Facebook, where the founders can retain control regardless. The latest “bad” example of this is the IPO for Snap in the USA where the only new shares being issued are those with no votes attached.
The two founders will have “C” shares that gives them control, with early investors and employees having some votes in “B” shares but only “A” shares with no votes are being issued in the $25 billion IPO. It has received a lot of public criticism with the Council of Institutional Investors saying: “Some companies lacking effective accountability to owners soar for a time but others crash and burn, and still others pursue mistaken strategies”, which is pretty well what I said in the previous blog post. Indeed the Editor of the FT quoted the recent examples of Groupon and Zynga in his own negative comments on this latest development.
Even odder is that the founders can retain control if they step down and even for nine months after they die. This is surely as laughable as the tale of Armand Hammer of Occidental who had an employment contract that continued to pay him after he died so far as I recall from reading his biography some years ago.
Dodd-Frank and Fiduciary Duty
Other US developments under new President Donald Trump is that he has ordered a review of the Dodd-Frank Act that brought in a enormously complex and extensive regulatory framework for US companies after the banking crisis. It may not be regretted by many if it is scrapped.
However he has also ordered a review of the proposed fiduciary rule that requires stock brokers and other investment advisors to only act in the best interests of their clients. This rule was planned to come into force in April 2017 so will likely now be delayed.
Some have complained that this rule would add to the costs of smaller advisors considerably. But it is surely a good principle. Indeed it is something that the UK should be looking at because at present all promoters of investment products have to do is adhere to their contract terms. They unfortunately do not have to act in the best of interests of their clients like trustees and their interests can conflict with yours.