WASHINGTON – Today, Senators Ruben Gallego (D-AZ) and Mike Rounds (R-SD) introduced the Enhancing Multi-Class Share Disclosures Act to increase corporate transparency for everyday investors in companies with multi-class share structures.

“When companies sell one kind of stock to everyday investors and another kind to insiders, it’s hard to know who really holds the power in that company,” Senator Gallego said. “In order to level the playing field between the everyday Americans and the powerful elites, we need more transparency. This bill requires companies to disclose how much voting power each share has, so that everyday investors know what they’re getting into and can make the best decisions with their money.”

“Multiclass share structures have been used in U.S. markets for many years and can be important for certain companies, especially family-owned businesses focused on long-term growth,” said Senator Rounds. “At the same time, investors should have clear, easy-to-understand information about who controls voting power. Our legislation takes a practical, balanced approach by improving disclosure so shareholders can clearly see when insiders or large investors hold greater influence, strengthening transparency and confidence in our capital markets.”

A multi-class share structure occurs when a company issues two or more classes of shares that have different voting rights. This allows insiders to control decision-making while holding a smaller fraction of the company’s stock than would be necessary in a traditional one-share, one-vote structure. The structure is increasingly common at fast-growing technology firms.

READ MORE: Senate takes aim, gently, at tech companies’ supervoting stock (Semafor)

Multi-class share structures may pose significant risks for investors, including limiting investors’ abilities to influence management, direct strategy, and hold misaligned boards accountable. Additionally, these arrangements are often opaque, leaving everyday investors without a clear picture of who holds power inside a company. In 2018, the SEC’s Investor Advisory Committee found the current disclosure rules inadequate to protect investors from the risks of multi-class share structures.

The Enhancing Multi-Class Share Disclosures Act would:

  • Require companies with multi-class share structures to disclose shareholders’ voting power, including the number of shares owned by specified persons and the amount of voting power held by specified persons.
    • Specified persons refers to directors, director nominees, executives, or anyone who owns 5% or more of the company’s total voting power.

“The Council of Institutional Investors applauds Senators Ruben Gallego and Mike Rounds for their Enhancing Multi-Class Share Disclosures Act. When insiders hold disproportionate power without clear disclosure, shareholders can’t accurately assess risks or hold boards accountable. This bill will give our members the transparency they deserve, strengthen shareholder rights, help protect the interests of long-term investors across the country.”

A one-pager on the bill is available HERE.

Full text of the legislation is available HERE.