Dual class structure: are we aligned?

The dual class structure is one of the topics that is repeatedly commented due to the Facebook, Alphabet (Google) and other tech companies' exposure in the media. But they are not the only ones.

We would like to share with our readers a recent article by Anita Anand, University of Toronto – Faculty of Law. We have found the article is very educational about the dual class share structures and its pros and cons.

In a typical public company, shareholders can elect the board, appoint auditors, and approve fundamental changes. Firms with dual class share (DCS) structures alter this balance by inviting the subordinate shareholders to carry the financial risk of investing in the corporation without providing them with the corresponding power to elect the board or exercise other fundamental voting rights.

This article fills a conspicuous gap in the scholarly literature by providing empirical data regarding the governance of DCS firms beyond the presence of sunrise and sunset provisions.

The summary data suggest that the governance of DCS firms is variable. A large proportion of DCS firms have no majority of the minority voting provisions and no independent chair. By contrast, almost half of the DCS firms have a sunset clause and a majority of independent directors. Finally, just under one-third of DCS firms have change of control provisions over and above existing law.

On the basis of this evidence, this article argues against complete private ordering in favor of limited reforms to protect shareholders in DCS firms including: mandatory sunset provisions, disclosure relating to shareholder votes, and buyout protections that would address weaknesses inherent in DCS firms.

We also share a short article published at Bloomberg, which we find relevant as displays a couple of charts about the evolution of this capital structure during the last decades. We hope you find this information useful.

Alembeeks Group is an independent proxy advisor. Institutional investors need a proxy advisor that can help them effectively and efficiently make informed voting decisions and record keep all their votes.

Oracle: Director's independence and tenure

Taking advantage of the new Nassim Taleb’s book release “Skin in the Game”, we propose one of his ideas to introduce our note:

“When the Beard (or hair) is black, heed the reasoning, but ignore the conclusion. When the beard is gray, consider both reasoning and conclusion. When the beard is white, skip the reasoning, but mind the conclusions.”

Oracle has announced it Shareholders Annual Meeting 2017 for November 15. Among the different proposals, the shareholders will have the opportunity to vote on the already recurring issue of the advisory vote on executive compensation. Certainly this is a major issue as Oracle is the only S&P 500 company that has failed say-on-pay five years in a row.

Oracle executive salaries have been surprisingly disconnected to sector practices and company performance evolution. This year the pay-packages are more modest, however other proxy advisors like ISS have also raised their concerns, as Bloomberg reports.

Nevertheless, in this note we would like to focus our concern on Oracle’s board structure. Though the board is formed by 8 independent directors out of 12, its composition could be considered less independent if we scratch a little deeper. The case is that Oracle’s board of directors is significantly above-average in terms of tenure and seniority compared to the sector.


In our view, a clear independence issue in Oracle’s board is the fact that directors’ tenure is especially long. Average tenure almost doubles its peers (see right chart above). Three Independent directors hold tenures of over 15 years. Mr. Berg, who also chairs the Independence committee, reaches 20 years as Director. Mr. Boskin, who chairs the Finance and Audit committee, is director since 1994, which amounts to 23 years. Moreover, Ms. Seligman, director since 2005 and vice-chair of the Compensation committee, has kept the role while compensation proposals have been rejected by shareholders for five years in a row.

Independence is one of the main factors when valuing directors and, unfortunately, is one of the most difficult to assess. Independence is ultimately demonstrated by the decisions they make. We consider highly relevant that members of the key committees (audit, nomination and compensation) have no apparent conflicts of interest that would interfere on their capacity to make objective decisions. Companies with robust director evaluation programs should not need a mandatory retirement age to detect poorly performing directors. Similarly, younger directors need to undergo the same evaluation to ensure that their performance is up to par.

However, in some other legislations, tenure is formally limited to avoid this blurred timing area. In the UK, the UK Corporate Governance Code provides that a board should explain, in its annual report, its reasons for determining that a director who has served more than nine years qualifies as independent. Nine years has also been adopted as the appropriate yardstick for director tenure in Singapore, South Africa and Hong Kong. Twelve years in the case of Spain.

An interesting study of Yaron Nili, University of Wisconsin, 2015, suggests that the trend of increased director tenure is a reaction of companies which have been forced to remove many high ranked executives from the board room. In this sense, the “new insider” role arises as a “hybrid board member who complies with independence requirements but at the same time, through longer tenure and other attributes, possesses many of the traits that corporate insiders previously brought to the board table.”

Another issue that raises our concern on the current Oracle’s Board composition is that it comprises 58% of directors in their 70’s, 25% in their 60s and only 17% in their 50s (see left chart above). We certainly value seniority contributions to the board tables in many positive ways, notwithstanding, such unbalanced seniority composition may not be fostering the appropriate added value in comparison to other companies in the same technology sector like the ones shown in the chart above.

Find below the directors proposed by the company to be reelected during the next General Meeting 2017, November 15:


Director Category Age First Year Tenure
Berg Independent 70 1997 20
Boskin Independent 71 1994 23
Catz CEO 55 2001 16
Chizen Independent 62 2008 9
Conrades Independent 78 2008 9
Ellison CTO, Founder 73 1977 40
Garcia-Molina Independent 63 2001 16
Henley Vice Chairman 72 1995 22
Jurd CEO 60 2010 7
James Independent 53 2015 2
Panetta Independent 79 2015 2
Seligman Independent 79 2005 12
Average 67,92 14,83


This is note is not a proxy advisory report. In case you, require further information please contact us

Further information about Oracle’s proxy statements can be found in this link.

Shareholder activism summer readings

Summertime is leaving some space to shareholder activism articles in influential newspapers. In this sense, we would like to share a couple of them, hoping that this trend evolves in something more than a “summer reading”.

The first one, “Call to action” published by The Economist summarizes the recent movements within of activist institutional investors in relation to European companies during these last months.

The second one, “O Canada -- 'The Promised Land For Shareholder Activism'”, published by Forbes, it offers an interesting interview to a veteran proxy advisor that gives us an initial global overview an a following focus on Canada situation.

Although we share these articles in our blog, as we find them explanatory, we do not support all the statements contained in them. Indeed, there are some that disagree and that we will probably develop in next posts.

Have nice summer readings.

Shareholders’ rights directive 2017/828

In May 2017, it was approved the EU Shareholders’ Rights Directive 2017/828 which modifies the previous Directive 20107/36 as regards the encouragement of long-term shareholder engagement.

We have prepared a summary of this directive focused on the impact in institutional investors, asset managers and intermediaries.

In this sense, we will keep informing when the national chambers transpose this directive into their own legislation during the coming months.

We hope you enjoy the reading.