Snap IPO has SEC eyeing vanishing voting rights

One of two current members of the Securities and Exchange Commission raised questions last week for companies like Snap that offer shareholders unequal voting rights, saying the agency should “focus on how some innovations may prove detrimental to investors.”

“Unequal voting rights present complex and new issues that need to be understood and addressed,” Commissioner Kara Stein, a Democrat, said at a meeting of the SEC’s Investor Advisory Committee in Washington. “We also must be mindful of the precedent being created.”

In a unique move, the parent of social media app Snapchat — led by Evan Spiegel (left) — sold $3.4 billion of shares to outside investors with no voting rights, prompting concerns that those stockholders would not get enough transparency or influence on matters like executive pay or strategy.

Sunday Post columnist Jonathon Trugman was one of the first to raise this issue last week.

Snap’s structure has reignited a debate about how much leverage investors should have, at a time when money has flooded into passive index funds that cannot sell stock. Snap has said its voting structure is good for investors as a way to preserve founder control.

Although Snap was the first to offer outside investors no voting rights at all, other big technology companies have offered shares with limited voting rights to outsiders in recent years, despite calls from large institutional investors for increased rights to promote better corporate governance.

The topic of unequal voting rights comes at a time of uncertainty for the SEC. Three of its five commission seats are currently empty and the sole member other than Stein, Republican Michael Piwowar, is its acting chairman.

President Trump has nominated Wall Street attorney Jay Clayton, also a Republican, as the top securi- ties regulator’s permanent head. His confirmation would put Stein in the minority and possibly limit her influence.

During Thursday’s meeting, Piwowar revealed little about his own thinking on voting rights.

Stein said companies offering IPOs without voting rights should be studied.

“In the long run, we need to critically assess our regime for initial public offerings. The current structure is premised on taking investors’ capital while giving the investor rights to hold that company’s management accountable of that capital,” she said.