Governance in Brief
May 9, 2019 | Editor: Martin Wennerström
Recent US IPOs fuel debate over dual-class shares
While a recent wave of US stock market debuts has prompted speculation that 2019 will be a record year for IPO proceeds, three of these IPOs have sparked the debate over dual class shares. Lyft, Pinterest and Levi Strauss & Co are tapping the public equity market by only floating class A shares, each entitling the holder to cast one vote, while retaining super-voting shares in the hands of co-founders and other insiders. The companies have established classified boards, with only a fraction of the directors up for election each year. Lyft and Pinterest are also adopting supermajority requirements for charter and bylaw amendments. The debate had been already brought to a head by Snap’s unprecedented March 2017 floatation of exclusively non-voting shares. In response, FTSE Russell excluded companies with free floats representing less than 5% of the total voting power from certain indices, while S&P Dow Jones removed companies with dual-class share structures from specific indices. As regulators and institutional investors appear to unite in voicing calls for sunset provisions on dual-class structures, the outcome remains to be seen.
Insys Therapeutics’ founder convicted in opioid probe
On May 2, 2019, founder and ex-CEO of Insys Therapeutics John Kapoor, as well as four of the company’s executives, were convicted in a racketeering conspiracy case. A Boston jury found Kapoor and the four co-defendants guilty of bribing doctors to prescribe an opioid painkiller for patients that did not need it and for providing misleading information to insurers in order to increase the drugmaker’s sales. Previously, on April 23, US pharmaceutical distributor Rochester Drug Cooperative reached a USD 20 million settlement over accusations that it illegally distributed opioids through a scheme run by CEO Laurence Doud III and ex-head of compliance William Pietruszews. The settlement does not clear the accusations against the two executives.
The two probes are part of a wider action against the illegal use of opioids, which has led to a national crisis in the US with more than 200,000 opioid overdose deaths since 1999.
Ferrexpo shares slump as auditor resigns
Deloitte resigned as the auditor of Swiss-based miner Ferrexpo on April 26, after reporting it was “unable to conclude” whether CEO and controlling shareholder Kostyantin Zhevago “does or does not have significant influence or control over Blooming Land”, a charitable foundation which coordinates Ferrexpo’s CSR program and is currently under investigation for money laundering and tax evasion. Two directors resigned on the same day, triggering a 28% plunge in Ferrexpo’s shares. The miner and its leadership previously came under scrutiny in 2015 with the insolvency of its transactional lender Bank Finance and Credit, at the time also controlled by Ukrainian Parliament member Kostyantin Zhevago. As regulators circle, the upcoming June 7 AGM is expected to witness shareholder unrest.
Metro Bank under fire as investor concerns mount
Britain’s Metro Bank is set to face backlash at its upcoming May 21 AGM, in the form of fallout from a GBP 900 million accounting error that surfaced in January 2019, sent its share price plummeting by over 70% and triggered regulatory probes, while also escalating existing governance concerns. The lender currently ranks amongst the UK’s most shorted stocks, while its 2019 first quarter results showed a 50% year-on-year drop in profits before tax. Proxy advisor Glass Lewis has recommended shareholders vote against founder and Chairman Vernon Hill, who has long been under fire in relation to payments made by Metro Bank to his wife’s architecture firm. Speculations over Hill’s removal have been fueled by his 2007 ousting from another bank he founded, Commerce Bancorp, amidst a scandal over related party transactions.