The world’s biggest shareholder advisory firm has given trading platform Tradeweb the lowest possible corporate governance score for the second year in a row, arguing its complex share structure strips ordinary investors of power and that its board lacks diversity.
Institutional Shareholder Services awarded Tradeweb the lowest score on a ten-point scale for governance, according to a report dated April 26 seen by the Financial Times. The trading platform is one of the largest in the world and is integral to the financial architecture supporting US mortgages, Treasuries and corporate bonds.
The low score stems from a tiered share class structure that awards the company’s majority shareholder Refinitiv, formerly owned by private equity firm Blackstone and since sold to the London Stock Exchange, 10 times the voting power of public shareholders. ISS also noted that Tradeweb’s board lacks independence and has just one female director.
Multi-class capital structures “create a misalignment between economic interest and voting rights, which can disenfranchise shareholders”, said ISS in the report.
Shareholders in the company attempted to pass a motion this month to require that lists for potential new board members include both women and minority candidates. However, the board opposed the motion at the latest shareholder meeting on May 10, pointing to its existing policy which it said was sufficient and already requires board diversity to be “considered” when selecting candidates.
Tradeweb said that it exceeds Nasdaq’s requirement that boards have at least one female director and one from an under-represented minority. Two of its directors identify as non-white.
Michael Miller, an analyst at Morningstar who covers the company, said ISS’s assessment was another example of the “looming cloud” that has hung over Tradeweb since it went public.
Blackstone took Tradeweb public in 2019, after acquiring the trading platform a year earlier as part of a $17bn deal for the financial data and terminals business of Thomson Reuters, later rebranded as Refinitiv.
When Tradeweb went public, Blackstone created four different share classes in the company that carried different voting rights. Class A stock, which is publicly traded, and class C stock received one vote for each share in the company. Class B and D stock, which is nearly all owned by Refinitiv and its affiliates, receives 10 votes per share.
It means that despite only holding roughly half of the publicly traded shares, Refinitiv holds closer to 90 per cent of the total voting power. As part of the deal to sell its stake in Refinitiv to the London Stock Exchange, Blackstone received a 40 per cent stake in the LSE.
“Tradeweb is deeply committed to a culture of diversity and strong corporate governance,” the company said. “We have been structured as a ‘controlled company’ since our 2019 IPO, and the top priority of our board is to act in the best interest of all Tradeweb shareholders.”
Blackstone and the LSE declined to comment.
Tiered share classes were popularised by tech groups led by founders that wanted to retain power over the companies they built. Shareholders worried about missing out on a bull run in tech stocks accepted the tiered voting structure. Recent IPOs by Rent the Runway and Sweetgreen used the structure, joining companies like Facebook and Google.
After going public in 2019, Tradeweb’s shares soared. But since the beginning of 2022, its stock price has fallen over 34 per cent, compared to a decline of 17.6 per cent for the Russell 3000, its index.
Blackstone has been criticised for watering down investors’ voting rights in the past. It was the first to strip bondholders of the long-held one bond, one vote tradition in a deal for Ancestry.com in 2020.
