US corporate governance: Snap's banana republic approach

Snap's IPO plans demonstrate why the ISG's Framework for US Stewardship and Governance is so desperately needed.

As if to demonstrate why a stewardship and governance code is so badly needed in the US, Snapchat’s IPO plan, designed to raise $3bn for the company, will only offer shares with no voting power (today’s FT). The Council of Institutional Investors has 'strongly urged' Snap to reconsider, while Calpers criticised Snap's ‘banana republic-style' approach.

Their concerns are well founded. 

If Snap is able to get away with this move, it would set a dangerous example to other companies looking to IPO.

If equity investors are handing over savers’ hard-earned cash for relatively risky securities (equity holders are bottom of the food chain if the company goes bust), surely they should have a say in how that company is managed so they can ensure it stands the best change of long-term corporate sustainability? Expecting investors to hand over $3bn on blind trust defies reason. The fact that Snap thinks it doesn’t have to give its capital contributors a say is a reflection of just how far out of whack corporate America has strayed.

While a simple boycott is one option open to those who invest actively, an IPO that values Snap at roughly $25bn will see it included in many index benchmarks. That means the growing number of passive investors will be blindly buying assets they have no hope of controlling or influencing.

The Investor Stewardship Group’s Framework for U.S. Stewardship and Governance can’t come soon enough. It’s a shame it will take another year to implement. It’s influence, and that of its heavyweight signatories, is needed now to help prevent a further deterioration of governance standards that could prove hard to reverse. And it will be the little man who loses out.

(Read my previous article on the ISG Framework here)

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