The Investor Coalition for Equal Votes (ICEV) has called for unequal voting rights, also known as dual-class share structures, to be phased out, after its analysis found that they could be “harmful” to beneficiaries.

A report from the ICEV found that dual-class share structures do not deliver financial advantages over the long-term, confer unjustified privileges to company insiders, and insulate managements and boards from the views of independent investors, all of which can ultimately impact outcomes for beneficiaries.

To minimise the risk of harm to beneficiaries, it recommended phasing out of dual-class share structures.

The recommendations were tailored to different financial market participants, including companies looking towards initial public offering (IPO), company advisers, fellow investors, stock exchanges and index providers, as well as policymakers and regulators.

The research, undertaken in partnership with Chronos Sustainability, was prompted by a significant increase in the number and proportion of IPOs that have dual-class share structures.

Indeed, between 2020 and 2022, over 40 per cent of US tech IPOs used the structures and 20 per cent of US non-tech IPOs – significantly higher levels than historic averages.

However, the coalition acknowledged that dual-class share structures will take time to be phased out, and may also have some benefits in the very early stages of a company’s existence after a public listing.

Given this, it outlined a set of recommendations for key market participants over the near-to-medium term.

The coalition also called for sunset clauses and robust investor protections to be put in place for companies looking to list with dual-class structures going forward, or for those who are currently listed with dual-class structures.

The report was also published alongside an investor statement on unequal voting rights, which is intended to act as a call to action for investors who are concerned about the rise of unequal voting rights and is open to both asset manager and asset owner signatories.

ICEV chair and Railpen senior investment manager, Caroline Escott, commented: “The right to vote is arguably the most important of all shareholder rights.

“Dual-class share structures undermine those rights and remove a key accountability mechanism for poorly performing management, making it harder for shareholders to be effective stewards of the companies they own.

“Our report highlights several high-profile cases where dual-class share structures have enabled privileged insiders to manipulate voting outcomes to their own benefit, to the detriment of investors and, ultimately, the beneficiaries whose interests we serve.

“Instead of taking steps to increase the risk to pension and retail savers by rolling back a vital investor protection, it is crucial that policymakers, and market participants, consider the impact of unequal voting rights from the perspective of both companies and investors alike.”

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