The Council of Institutional Investors and 16 of the association’s asset owner members penned a letter to SpaceX’s management highlighting their concerns about governance provisions, including its proposed share class structure, in the companies’ upcoming initial public offering.
The letter, shared Tuesday and written by the association’s deputy director, Glenn Davis, took aim at the company’s proposed share class structure, which would give Founder and CEO Elon Musk substantial extraordinary voting rights, and expressed concerns about the independence of the company’s board and the diminution of shareholder rights under Texas law.
“Our member funds are long-term shareowners with a fiduciary duty to protect the retirement savings of millions of working people and their beneficiaries,” the letter stated. “As long-term investors, we recognize that dynamic, founder-led companies can and do create substantial value, and we do not doubt the company’s ability to attract capital. Our concern is with accountability to shareholders who provide the company capital. Stronger governance may make initial as well as longer term share pricing more attractive and stable.”
According to SpaceX’s S-1 filing with the Securities and Exchange Commission, Class A shares would be granted one vote, while Class B shares would be granted 10 votes. Musk would maintain a majority of Class B shares, which, the letter notes, would leave Class A shareholders with little or no voice in the governance of the company.
“The principle of one share, one vote is a bedrock principle of good corporate governance and the equitable treatment of investors,” the letter stated. “When a company raises money from public investors, those investors should have voting rights in proportion to their economic interest, and a single class of voting stock keeps the board accountable to all shareowners. This was the very first policy CII adopted when it was formed in 1985, and it remains a core CII position today.”
Institutional criticism of the SpaceX IPO has steadily increased. In May, the California State Retirement System and the New York State and New York City comptrollers penned a letter criticizing the company’s governance structure. The Danish pension fund AkadmikerPension added the company to its exclusion list, banning the pension fund and its external managers from investing in SpaceX.
The CII letter’s was co-signed by (in the order listed):
- Thomas DiNapoli, New York State comptroller;
- Michael Frerichs, Illinois treasurer;
- Jonathan Grabel, Los Angeles County Employees’ Retirement Association CIO;
- Mark Levine, New York City comptroller;
- Brooke Lierman, Maryland State Retirement and Pension System vice chair of the board of trustees;
- Kevin Landhal, Fire and Police Pension Association of Colorado executive director;
- Lynn Paquin, California State Teachers’ Retirement System portfolio manager;
- Mike Pellicciotti, Washington state treasurer;
- Andrew Roth, Colorado Public Employees Retirement Association CEO and executive director;
- Erik Russell, Connecticut treasurer;
- Elizabeth Steiner, Oregon treasurer;
- Allyson Tucker, Washington State Investment Board CEO;
- Lisa Beauvilain, Impax Asset Management global head of sustainability and stewardship; and
- Caroline Escott, Railpen (U.K.) head of investment stewardship and co-head of sustainable ownership.
