Precatory proposal at BJ, activism at SNAP

Summary

Podcast Summary: Shareholder Primacy

Episode: Precatory proposal at BJ, activism at SNAP
Hosts: Mike Levin (activist investor), Ann Lipton (Professor of Law, University of Colorado)
Date: April 8, 2026
Description: This episode examines two current examples of shareholder activism and the evolving strategies investors use in public companies: (1) a precatory ESG proposal at BJ's Wholesale and (2) challenges faced by activist investors at Snap Inc., a tightly-controlled dual-class company.

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Overview

The episode covers two activist “situations”:

1. The mechanics and implications of a precatory ESG proposal at BJ's Wholesale (BJ), where a shareholder used a novel method to pressure the company into including a climate-related proposal on the AGM ballot.
2. The uphill battle facing activists at Snap Inc. (SNAP), where the dual-class share structure essentially disenfranchises all public shareholders, and activists must rely on public pressure rather than governance tools.

The hosts analyze the tactics and legal terrain in each case, emphasizing the interplay of securities law, shareholder rights, and emerging activist strategies.

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1. Precatory Proposal at BJ's Wholesale (BJ)

Discussion begins at [02:13]

Background

• Proposal origin: Trillium Asset Management, an ESG-focused fund, submitted a shareholder proposal to BJ's Wholesale, requesting improved disclosure on greenhouse gas emissions and mitigation efforts.
• Type: Precatory (non-binding) proposal
  • “If it passed, BJ's could… decide to ignore it.” (A, [05:01])
• Trillium is notable as “one of the larger in terms of AUM assets under management activists or ESG type activists.” (A, [04:08])

Procedural Hurdles

• Ownership Rule Issue: Trillium initially failed to document share ownership correctly but later fixed this by supplying a custodian letter.
  • “They cured a procedural deficiency about share ownership.” (A, [06:13])
• SEC ‘No Objection’ Process: BJ tried to exclude the proposal, arguing it was ‘ordinary business’ under SEC rules. The SEC allowed BJ to omit the proposal (“the SEC wrote their three line letter saying we will not object” — A, [07:41]).
• Contrast: New York State Common Retirement Fund took the legal route by suing BJ to compel inclusion of a deforestation risk report. (B, [03:12])

Tactical Innovation: Threat of a Proxy Contest

• With the SEC route closed, Trillium “threatened to solicit proxies itself,” essentially threatening to run its own proposal-only proxy contest ([08:31]) — a rarely used but powerful activist tool.

• This method echoes the UMWA tactics at Warrior Met Coal: threatening a ballot contest for proposals (not directors). The core leverage: if big funds voted on the activist proxy card, it would deprive management of visibility into shareholder support and might even destabilize vote counts and quorum ([11:53]).

  “If people return the mineworker proxies, then Warrior Met ...wouldn’t necessarily even know if they had a quorum.” (B, [11:53])

• Trillium's strategy forced BJ to settle: “BJ agreed to just include the proposal” ([13:01]), without agreeing to implement it.

Strategic Analysis

• Effectiveness of the Threat: The hosts note this threat is increasingly credible and cheap (“the whole [UMWA] thing was going to cost them around $15,000” — A, [14:54]), allowing activist investors to pressure boards even without 14a-8 success.

• Universal Proxy: A key enabler is the new universal proxy rule, allowing shareholders to list both proposals and directors on their own ballots. There are calls from the business community to limit this power ([18:36]):

  “Already there are like squawks from the business community asking the SEC to amend... its rules to take this power away.” (B, [20:10])

• Limitations of the Win: The proposal will be on the ballot, but “it’s not like they agreed to implement the proposal,” and the hosts debate whether Trillium should have forced more ([15:43]):

  “This is where I’m saying Trillium let BJ’s off easy.” (A, [15:31])

• Larger Trend: The tactic presents a new tool for well-resourced activists as traditional shareholder rights channels get narrowed.

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2. Activist Frustration at Snap Inc. (SNAP)

Discussion begins at [21:38]

Company Structure and Context

• Snap’s share structure is ultra-insulated: founders Evan Spiegel and Robert Murphy maintain 99% of the voting power via a three-class share system.
  • “Spiegel and Murphy control 99% of the votes. It is a completely controlled public company.” (A, [23:33])
• Most public shareholders (Fidelity, Vanguard, Tencent, etc.) have non-voting shares ([24:20]), and there’s “no shareholder meeting. They don’t even have an AGM.” ([25:05])
• SNAP stock is down 75% since its IPO, drastically underperforming peers ([25:59]).

Activist Approaches

• Activist Fund ‘Irenic’: Owns 2.5% economic interest (some by derivatives) and is launching a high-profile public campaign (website, presentations) to push for change ([27:18]).

  • They appeal to both economic interests (“Evan Spiegel and Robert Murphy would clearly benefit”) ([28:07]) and the professional pride or reputation of Snap's independent directors ([30:26]).

• Tools available: Conventional levers (board nominations, bylaw amendments) are unavailable since public shares have no votes; legal routes and SEC mechanisms are essentially closed ([28:47]).

• The only avenue is reputational/public pressure (“are they trying to embarrass or try to shame or something...?” — A, [28:47]).

The Role of Shame and Social Pressure

• The hosts discuss whether board reputational concerns might be a lever: “...if any of these directors read over the Irenic materials...they have only one choice, is to quit.” (A, [31:09])

• But even then, the founders can appoint new directors; “the question is, what’s the threshold of shame for Spiegel and Murphy?” (A, [32:02])

  “People who become that wealthy do not do it by saying, oh, I’ve got enough...they seem to want to maximize value.” (B, [32:05])

Precedent and Impact

• This is rare in controlled companies. Recent precedents:

  • Starboard’s campaign at Fox (dual class structure) — no governance change occurred, but some positive dialogue ([32:54]).
  • Blackwells’ successful push for founder-CEO ouster at Peloton ([33:23]).

• Motivation for Irenic: Could be partly for reputation: “...like, I want to make a big splash with some kind of high-profile-ish thing and...now my name’s out there.” (B, [35:55])

• Market response: SNAP stock up ~20% in a week on Irenic news ([36:31]).

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Memorable Quotes & Key Insights

On the Efficacy of Precatory Proposals

• “It’s not the proposal part, it’s the precatory part...the vote can’t be binding. But they could have gotten them to settle, to implement.”
  — Mike Levin, [17:04]

On Universal Proxy’s Game-Changing Power

• “The only reason a proposal-only contest can even be run as a practical matter is because of universal proxy.”
  — Ann Lipton, [17:27]

On Limits of Activism at SNAP

• “Most activists, once they see a structure with this degree of control, are reluctant to pursue it for this kind of reason.”
  — Mike Levin, [35:44]

On the Business Community's Response

• “Already there are like squawks from the business community asking the SEC to amend...its rules to take this power away.”
  — Ann Lipton, [20:10]

On the Reality for SNAP Investors

• “If I were to go and buy SNAP shares, I would be buying non-voting shares.”
  — Ann Lipton, [24:25]

• “There’s no shareholder meeting. They don’t even have an AGM.”
  — Ann Lipton, [25:05]

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Timestamps for Important Segments

• [02:13] — Introduction to the BJ’s Wholesale precatory proposal case
• [06:23] — Discussion of procedural requirements and BJ’s response
• [08:31] — Trillium’s escalation: threatening their own proxy solicitation
• [11:34] — Parallels to Warrior Met Coal UMWA campaign
• [18:14] — Universal proxy’s enabling effect on the new activism
• [20:10] — Pushback from the business community on universal proxy usage
• [21:38] — Start of Snap/activism discussion
• [23:54] — Explanation of Snap’s share structure and governance void
• [27:18] — Introduction to Irenic’s activist campaign
• [32:05] — Discussion: what would it take to move Spiegel/Murphy?
• [36:31] — Market response to activism at Snap

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Takeaways

• Precatory proposals are being weaponized by credible threats of proposal-only proxy contests enabled by universal proxy rules.
• Even small, inexpensive activist efforts can prompt board action, especially if the threat is credible and the activism is institutionally resourced.
• Dual-class/controlled company activism is mainly a matter of wielding public/reputational levers, not legal/governance-remedial ones.
• Universal proxy rules are under attack by business groups seeking to stem this evolving activism trend.
• In companies like SNAP, public shareholders’ only real power is the bully pulpit and performance embarrassment; governance change is structurally locked out.
• Activist campaigns, even in these tough situations, can boost market optimism and raise fund profiles.

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Hosts: Mike Levin and Ann Lipton
Produced by: Free Float Media Inc.

Transcript

[A]

Welcome to Shareholder Primacy from Free Float Media, a podcast about activist investing, securities law and all the ways the financial and legal worlds intersect and collide in real life. Ann Lipton and I have returned once again for this week. Ann Lipton is a professor, a law professor, sorry, at the University of Colorado who teaches in research, securities and business law. Right. You are a law professor, right?

[B]

I think I am a law professor, yes, I checked.

[A]

Not finance, not humanities or finance. Legal is kind of funny. Humanities adjacent. Law professor, University of Colorado, who teaches and researches securities and business law. She holds up the legal end of our podcast.

[B]

And that's Mike Levin, an activist investor who lives and works in Chicago. He covers the financial side of our podcast.

[A]

Yes, I do. All right, Ann, how you doing today? You doing well?

[B]

I'm doing fine.

[A]

Great. Cool. Just busy with work is what I would say. Suspect trying to like at the end of the end of the term, under

[B]

control, drafting exam, all that kind of fun stuff.

[A]

Oh, lovely. All right, cool. All right, let's, let's talk about a couple of recent, relatively recent kind of activist situations. I don't really know the quite noun, the, the noun. Are they situations, are they engagements, are they.

[B]

Well, contest either. You're the expert.

[A]

Okay, let's call them situations today, activist situations this week. One is at BJ's wholesale club symbol BJ having to do with a interesting precatory proposal and the other at Snapchat, Snap, which is famous at least among sung activists for some governance problems we'll talk about in a little while where a particularly good activist has tried to agitate for some change. So maybe we'll cover both those today. How's that?

[B]

Sounds good.

[A]

All right. And what else do we have to tell our listeners?

[B]

Oh, mailbag. Yes, you can always, if you like, send us email, ask questions, ask us to comment on stuff, whatever you like. You can email us at shareholder PrimeCyreeFloat LLC.

[A]

Yes, let's keep those cards and letters coming, as they used to say. Anyway, let's plunge into the first of our two situations, which is an interesting precatory proposal at BJ's Wholesale Warehouse. As I said, symbol BJ, they got in a situation we'll call a situation. I like that. Today, a situation where a shareholder essentially either persuaded or forced compelled BJ to include a particular precatory proposal on the 20 on the upcoming 2026 AGM agenda and proxy statement. So let's talk a little bit about the proposal and then we can talk about kind of what it means. I don't know how you kind of looked into this too. I think we both kind of.

[B]

Yeah, we both saw this. I mean like, and it's really funny because we're talking this time, I think about Trillium. But it's worth mentioning that New York State Common Retirement Front is actually engaged in a lawsuit right now to force the same company, BJ's to include a report on the risks of deforestation on their, on their proxy. And that as far as I know, that lawsuit is still ongoing. But Trillium had an alternative way rather than a lawsuit of they didn't threaten

[A]

litigation, they threatened something else, which is much more interesting. Yes, yes. So they. Trillium. Trillium Asset. Who's Trillium Asset Management? Trillium Asset Management is an ESG oriented fund. So they have a, they have a bunch of assets. They're not merely a, you know, consultant or advocate, but they have a, they have some real money which will become important in a moment. And they, you know, they submit a handful, a number, a small number of proposals each year, but they vote you know, quite vocally on a lot of proposals. And they have a, you know, a stewardship report that they issue and so forth. Again, we're not talking about, you know, a huge asset manager, but you know, among the ESG community, they're one of the larger in terms of AUM assets under management activists or ESG type activists. And they submitted at BJ's roughly around January 6th of this year. Proposal, a precatory proposal. It had to do with writing a report on greenhouse gases or doing something more than what BJ's already does for greenhouse gases and, you know, disclosure about what they do and what they emit and what they do to mitigate and so forth and the kind of usual E oriented precatory proposal. So, you know, if it passed, BJ's could, you know, decide not to ignore it.

[B]

It's a precatory proposal. They don't have to follow it.

[A]

Exactly right. So. So on January 6, they filed it in a timely way. So they got it, you know, under the wire or whatever. There was a little bit of correspondence. I don't know if you looked into the SEC stuff, but there was. Yeah, okay, so I read some of the correspondence. So the first thing that BJ's did is they said you got a procedural deficiency. They didn't actually prove their share ownership in the first letter. They said they only referred to what their share ownership was rather than submitting documentary evidence. And usually in these cases you just gotta like either submit, you know, for individuals like Jim McRitchie and, and John Chavet and they just submit a redacted brokerage statement that says here's the shares we own. In this case, Trillium submitted a letter from their custodian, which I think was Northern Trust, that said, oh, here's our share. So anyway, so they cured a procedural deficiency about share ownership. And it surprises me somewhat still.

[B]

That's the kind of thing that seems you would kind of have down as far as.

[A]

Yeah, exactly. Trillium could have sent this in originally,

[B]

but anyway, actually, I mean, yeah, I don't know. For all I know, it's common for really well known asset managers to not submit that and companies just let it go because they know maybe that's a possibility. Like BJ's is just using whatever it

[A]

can, just trying to make him, make him jump through all the hoops. Anyway, then what became more topical was BJ submitted this by now standard no objection request to the SEC saying, and they had a long letter from their law firm, I can't remember who it was, might have been Howery wrote them a letter saying here's the basis which they were using was ordinary business.

[B]

It's always. Yeah, it's ordinary. Yeah. It's funny because the SEC invited companies to object on the ground that Delaware does not permit precatory proposals. But so far no one's biting. Instead they're just sticking to its ordinary business.

[A]

Right. So BJ's said, here's our we request not no action, but no objection as it's called these days based on every business conclusion. And Trillium replied, as they're allowed to

[B]

do, this is not ordinary business.

[A]

Very standard. Right, okay. And then sometime I think in February, you know, probably within five, six weeks, the SEC wrote their three line letter saying we will not object. Yeah. The company had, you know, stated a reasonable basis for thinking that this was ordinary business. So we're just going to let them proceed and we will not pursue any kind of enforcement against the company.

[B]

Right. So. And again, just to reiterate at a similar point, New York State Common Retirement Fund just sued BJ's because there was nothing you could get out of the sec. But that's not what. Yeah, but that's.

[A]

And a half a dozen other companies how other investors also sued companies.

[B]

Yeah, yeah, we talked about. Yeah, yeah, we talked about. Leslie. It's just amusing because it's the same company, but Trillium went in a different direction.

[A]

Yes, right. Trillium then evidently decided to Threaten to solicit proxies itself.

[B]

Yeah, it was going to run its own proposal only proxy contest.

[A]

And this is what I have been waiting for. Okay. Just as a reminder to people, we saw a version of this two years ago at good old Warrior Met Coal. We've talked about him on the pod several times. And just to refresh people's memory, the AFL cil, the mine workers essentially did the same thing. They didn't even go through the no action process at Warrior Met Coal. They basically just said we're going to solicit proxies for a labor relations proposal and for their good governance proposals.

[B]

Right? Yeah, because. Yeah, just because. Just saying. Because first of all Warrior Met like it's very possible that their labor proposal really would have been ordinary business. And second of all, if you are going through 14A8, you can only do one proposal at a time. So the union and Warrior met the mine workers. They said I'm not even going to. If I avoid 1488, I can avoid all the restrictions. I don't have to worry about ordinary business. I don't have to worry about one proposal per meeting.

[A]

Length, length, 500 words.

[B]

So they just skipped 14A8 entirely. Trillium decided to do this because they

[A]

had been rejected exactly as a consequence of the 14 8. Right. And again the warrior met one took place in the context, you know, pre the new. No objection.

[B]

Yeah, yeah. But even then like know they couldn't have done it other than through Warrior Med.

[A]

I mean the afl, the mine workers basically said screw it, we're just going to go right ahead and we're going to bring it right to Warrior Med cold. You know, Trillium took this extra couple steps. So. And what we know about what Trillium did basically came from a news release. So it's not like we have SEC filings we can work with. So Trillium as they reported a news release, they threatened, they didn't use, I think they didn't cite for, you know, Rule 14 but they basically said we're going to use our, we're going to do our own solicitation. Or they reported this and then they said we are going to. Or we, we threatened to. This is interesting. They put all these threats out in a news release which you know, rather than just saying the outcome, which we'll get to in a sec, they said and we were also going to potentially include other good corporate governance shareholder proposals in addition to the greenhouse gas proposal that was really of interest to them. So they were kind of copying at Least in terms of the structure of the precatory proposals. They were fashioning it after what the mine workers did at Warrior Met. Gulf so there was going to be at Warrior Met there were like four different good governance proposals and the labor relations proposal, all five of which ended up on the proxy statement and got votes. And we've talked about that.

[B]

Yeah, because we talked. I mean just as a reminder like so the idea here is that Warrior Met was going to run the United Mineworkers was going to run a full scale proxy contest. But its ballot was what they were contesting were shareholder proposals, not they weren't running director candidates.

[A]

Right. That's the zero director thing.

[B]

And Mike, this was your insight. Like the reason this was such a threat to Warrior Met wasn't just because they might get the votes, but because they would lose control of insight into the proxies because if people returned the mine worker proxy. This is, I'm repeating you your analysis. If people return the mineworker proxies, then Warrior Met not only wouldn't have insight into them, they wouldn't necessarily even know if they had a quorum. So they were kind of forced to agree voluntarily to include these proposals on its own ballot to kill the alternative circulation. And that's basically what Trillium's doing, right?

[A]

Well, it's. Yes. So. So again there was no agreement at Warrior Med Coal. This actually went to a vote.

[B]

Well, it went to vote because they put it on their own. They put it on their own.

[A]

Exactly, exactly.

[B]

That's what they.

[A]

BJ's learned from this. Clearly. Okay. BJ's if they didn't, it sure looks like they studied what happened here at Warrior McColl and AFL, the mine workers, because the nature of the agreement, this was settled, so to speak. And the settlement was BJ agreed to just include the proposal, right?

[B]

No, and that's no. And that's what. Yeah, that's ultimately what.

[A]

Well that, that's, that's what Trillium. That's what. That's what.

[B]

And that's what. And that's what Trillium wanted.

[A]

All that's what Trillium water. Right. So I have some comments about what Trillium did. So first it's, there's another fact to introduce to this which is that shareholders voted on this last year, this almost this exact proposal from Trillium at BJ's and it got like 30% support, which is a lot.

[B]

Which is decent predatory proposals. Yeah, that's a decent showing. That's a pressure on the board, showing

[A]

so it's conceivable that it could have done as well or better, maybe a little worse. I don't know. In this environment, it's hard to tell how this stuff's going to go. Again, I didn't study the BJ's investor base or. I didn't look at that. I just looked at it.

[B]

I always assume that large asset managers are sort of quieted by the current regulatory environment there.

[A]

You're probably right.

[B]

Yeah.

[A]

Right. And so that was, that was the first thing. Second, another I don't know if it's a fact is that, you know, Trillium is not some, you know, rando kind of individual or little tiny pension. Trillium has means. Okay. Trillium is a big. I don't know how wealthy. I don't look at their expenses. But you know, they could spend some money on a proxy contest if they, if they really wanted to. So their threat to solicit proxies was for this proposal was legit.

[B]

Yeah, we said, I remember you said the United Mine Workers, when they actually ran it before Warrior met, agreed to include their proposals on their proxy. United Mine Workers was circulating. I think you said the whole thing was going to cost them around $15,000.

[A]

Exactly. Right. Or that's what they ended up spending and Trillium could spend a multiple of that. I mean, they probably, they may not want to.

[B]

Right. They might want you to make the point that they're willing to. They wouldn't do it every single time, but they just have to make the point.

[A]

This was a total credible. We could run a proxy contest. We could disrupt your AGM voting, We could get all five on the ballot, blah, all that stuff. Okay. So my. And let's recall what they agreed to do. BJ's in this settlement. It's not like they agreed to implement the proposal.

[B]

They agreed to let it be.

[A]

They agreed just to put it out, just to vote. Okay. And so this is, this is where I'm saying I think trillium let BJ's off easy. Okay.

[B]

Because.

[A]

Because they could have either negotiated implementation of the proposal, others at least one time this year in the whole face of the no objection struct that's come up. At least one company responded to the threat of, in this case, litigation by just saying, okay, well, just implementing. I think that was the American Airlines one. So. So rather than just saying, okay, let's let shareholders vote on it at&t. Sorry, rather than just letting show, let's just implement it. BJ, come on. It got 30% last year. It's probably going to get more this year or possibly going to get more. Just do it. Just do your disclosure, you know, write whatever report we're looking for. Okay. Or Trillium could have really forced the issue and said, okay, we're going to put this and all these governance proposals on the ballot and we're going to really, we're going to really stick it to you. All right, See, this is, this is where, like I said, Trillion settled for, you know, either settled for too little or set their sights too, too easy when they first, when they just wanted this on the ballot. Okay. And this is, again, I've said this before. This is my. You know what bugs me about precatory proposals? It's not the proposal part, it's the precatory part.

[B]

They can't be, well, they can't be binding. I mean, they literally legally can't be binding. But.

[A]

But the vote can't be binding. But they could have gotten them to settle, to implement.

[B]

I don't know what they want. Maybe, I think. Well, I mean, I want to make two things about this. So once again, this is something that you had, you know, your analysis back when this first happened at Warrior met with United Mineworkers.

[A]

Yes.

[B]

The only reason a proposal only contest can even be run as a practical matter is because of universal proxy.

[A]

Oh, absolutely.

[B]

Because. Because it means that for the first time, if shareholders run a contest where the only issue is vote on my proposal, they can still list all the directors and all the other normal stuff that's on the meeting on their ballot. Which means shareholders can say, I will vote for the proposal and vote for the directors and return that proxy card.

[A]

Right.

[B]

But if we, and just to make clear, if we didn't have universal proxy, then when Trillium ran its proposal only contest, it wouldn't be able to list on its ballot directors, which means if you're returning a proxy card and you have to either return the company card or Trillium's card, you would have to not vote on directors.

[A]

Right. Which none of the big funds, all the funds that were going to support this, that normally would say, yes, this is a great greenhouse gas thing and we love it. They wouldn't be able to do it. So this is. You're exactly right. Yes.

[B]

So I want to. But I also want to make two of it. Well, first of all, I point that

[A]

out, but I want to say, okay, that was one. How many more do you want to make? Ann, come on.

[B]

Sorry.

[A]

That's fine.

[B]

Also, what Trillium said, by the way, is that BJ's has a massive thick set of advance notice bylaws, which is worth mentioning now. They're there for director contests. I mean, they're there for your normal usual activist engagement. That's what they're there for. But Trillium still had to comply with them because they are worded to have to do with any shareholder business. So all like whatever insane set of hoops you have to jump through to propose business at a shareholder meeting under today's advanced notice bylaws, Trillium was like complying with all of it.

[A]

They were.

[B]

And they were prepared to do list what, you know, like, you know, what have I, you know, what is my interest and have I hedged and whatever other things you have to have for any events. So they were going to comply with that. But here's the thing. After Warrior met United Mine Workers and also Fox News, Starboard also had that Starboard was running a proposal only contest at Fox News to get rid of its dual class structure for whatever reason. After those, I think was the Business Roundtable. It's definitely a business group has asked the SEC to clarify or amend the universal proxy rules to say that it's only good for director contests, that you can't use it for proposal only contests. So I think this has become a really important tool for shareholders that have the means. Especially because running a proposal only proxy contest can be relatively cheap, as we said. I mean.

[A]

Oh yeah, right.

[B]

I as a human being wouldn't spend $15,000 on it, but if I were an institution, but a fund, sure.

[A]

Exactly.

[B]

So it's become or growing to potentially be a new source of shareholder pressure in a world where 1488 is losing its power and various other aspects of shareholder rights are being sort of dialed back. This is something that shareholders can do, at least some shareholders can do. But already there are like squawks from the business community asking the SEC to amend or clarify or whatever to its rules to take this power away. So we'll see whether the SEC actually does.

[A]

We'll see how they follow up. But for now, Trillium did the proper follow up in a sense, you know, threatening BJ with this contest. And BJ agreed. And my only, my only concern was, like I said, bj, Trillium let him off easy here.

[B]

Yeah. So we'll see how it gets voted.

[A]

Absolutely. All right, cool. We got one other we want to talk about today. We'll talk about Snap in a minute. All right. Here at Shareholder Primacy.

[C]

Shareholder Primacy is brought to you by freeflowanalytics.com, the only free database of corporate directors, their influence and their performance. If you own a stock or retirement plan, go to freeflowanalytics.com and look up which of your elected directors are performing well and which aren't. Use your vote in the alternative democracy and get your [e-mail] now back to the show.

[B]

Welcome back to Shareholder Primacy. I'm Ann Lipton with Mike Levin and we are talking about Snap.

[A]

Snap. Who is Snap? Snap is Snap is Snap adds in

[B]

the company that has Snapchat, which is. I use a lot of social media. I do not use Snap.

[A]

So did you use Snapchat at some point?

[B]

No, no, I was too old.

[A]

My kids did for a while. My kids use Snapchat for a while. I think I still have Snapchat on my phone and I have an account, but I've. I don't think I can use this now.

[B]

I have never had an account. I'm. I'm old school. Text based.

[A]

Okay, you use some social media. You must have a Facebook.

[B]

I use a lot of social media, but it's all text based stuff.

[A]

All right, cool.

[B]

I'm on Blue sky all the time.

[A]

Blue Sky. But Facebook, your Facebook account, Instagram.

[B]

I deleted that when Mark Zuckerberg made apologists for Holocaust denials.

[A]

Oh, okay. Anyway, so Snapchat, Snapchat, believe it or not, I saw some data in looking into this. Snapchat is like among the top four or five social media apps still. Right? I mean, you know, Facebook's the monster. Instagram is close and Meta owns both.

[B]

Right.

[A]

Twitter X is up there. But then Snapchat I think is either four or five in terms of, you know, usage statistics. Okay, but that's not. That's not. Yeah, me neither. Well, so this was.

[B]

Which may explain the situation in which

[A]

it was a really interesting company, kind of corporate governance wise. So here's a little bit of the background. So there's two founders, Evan Spiegel, who everybody knows. Robert Murphy, who's a little less well known. You know, they IPO the company in 2017 after, you know, taking VC money for quite a while. You know, at the time, it was a really hot IPO. At the time, they IPO'd. They implemented a share structure where there's actually three class issues. There's A's, B's and C's. We don't have to focus on the letters. It's worth saying that Spiegel and Murphy control 99% of the votes. It is a completely controlled public company. Okay. You know there's, there's a tiny bit of voting shares out there in public hands, but not even, but most of

[B]

the public shareholders, they don't have any votes at all. They have these like no vote shares.

[A]

Right. So there's, there's actually three public shareholders worth mentioning that Fidelity, Vanguard and also Tencent. Remember Ten Cent?

[B]

Yeah.

[A]

In China, together they own about like 28% of the non voting shares. That's not 28% of the economic interest because Spiegel and Murphy still control a bunch of that. But there's 28% of the non voting shares.

[B]

But, but all the shares that are publicly traded. If I were like were to go and buy SNAP shares, I would be buying non voting shares.

[A]

Oh, absolutely. Right, yeah, yes. Right, right, right, right, right. There's no been, you know, the offering back then was on the A shares, was the non voting shares and it was kind of unique at the time and remains kind of unique.

[B]

So yeah, as a result companies tend not to have like completely non voting shares. But there are some. Yeah, so yeah, right.

[A]

So as a result, because of the degree of control, some of the usual conventions and niceties of public companies are completely absent here. They still do reporting. You can go get the reporting company,

[B]

but they don't have to file proxy statements because they're asking for shareholders.

[A]

There's no shareholder meeting. They don't even have an agm.

[B]

Right. I mean there are weird requirements about this. There are certain kinds of disclosures that reporting companies need to make that they usually make in their proxy statement. But if they don't have proxies as here, because they don't have votes, because the shareholders don't have any votes, they have to move those into the 10k. So there are certain disclosures that would normally go in the proxy that are in the 10k.

[A]

Right. So if you want to know anything about the corporate governance, which again, I was never a SNAP investor for various reasons I tend not to even be interested in these kind of hot IPOs for reasons like this. So I had to go do some research and trying to figure out some of the chair classes and the voting and so forth. I had to read the 10k, couldn't find any kind of proxy statement because

[B]

there's no shareholder meeting, there's no shareholder. And I think you said there are no for, you know, nobody. Even if you get a stake, you don't File A Form 13D because there's

[A]

no G right, yeah.

[B]

Because those are only filed by people with voting shares and nobody can get voting shares.

[A]

Right. Okay, so here's what's happened, kind of echoing what we talked about, about the kind of app it is and how you and I are like a little not familiar with it. Shares are down 75% since the IPO in 2017. Okay. And you know, the market since 2017 is up a lot more than that. In particular, Meta and the tech companies are so Snap. Everybody's up a huge. So Snap is like way behind and there's a lot of Snap investors like that. You know, Fidelity, Vanguard and Tencent, which are just kind of aggravated because they can't do it. You know, they have no authority, they

[B]

have no, they have no governance rights. Right, right.

[A]

So. So normally this would just kind of bump along and all these non voting shareholders, you know, would, you know, you try to sell or something or whatever.

[B]

That's pretty much all you got.

[A]

They're kind of stuck. Well, one shareholder decided to take matters in their own hands and try to change this. Okay. So there's, there's actually a couple worth mentioning. The biggie is Ironic. It's a newer activist fund. They own about 2.5% of the economic. Basically 2.5% of the non voting shares or something.

[B]

Well, they said they don't actually own all of them, like in some cases derivatives, but they claim to have 2.5%

[A]

exposure of economic exposure to the company. And, and there's two founders, Andy, I think Andy Katz is the main one, he's former Elliot. Then there's another guy from Indaba, two like really good pedigreed activists who are, you know, who are, you know, you know, good. Ironic's done some other really good projects and they wrote a whole big presentation. You go find it. I think it's called Snape Safe Snap or something as a website. They got a whole bunch of ideas to try to get them from $4 to 20. It's currently trading at about $4 range per share and they think it can get as high as 26.

[B]

That's a lot.

[A]

Which is huge. I mean, that would catch up completely with a lot of the share price performance from some of its peers. And they have a detailed thesis and they have this website I talked about. They wrote a letter and they have a news release and a presentation. They got all sorts of stuff. Okay. And part of their point is that Evan Spiegel and Robert Murphy would clearly benefit. You know, they could, you know, burst out of the, you know, rough. I Think Spiegel stakes worth about a billion.

[B]

Yeah.

[A]

We could become a mega billionaire.

[B]

Yeah. Yeah. The theory is we can vote, but we really have good ideas and it will benefit you financially, so you should listen right now.

[A]

So the question is, what's Irene trying to do here? They have no hope of electing directors, putting bylaw amendments up, any of the conventional pressure points that activists might try to push on. It just are not available. Okay? So the question becomes, are they trying to embarrass or try to shame or something, some of the company leadership? And I have a comment kind of comment about that. Okay. You know, the first is, what is. What is the. You know, is this enough? Is this. Is this bad enough for leadership to kind of pay attention? And I'm not. I'm not sure, you know, Snapchat's done, you know, pretty poorly. But, you know, I'm not sure how much, you know, Spiegel himself or Spiegel and Murphy actually care about this. Okay. There are people who do care, which would be the independent director. So there's a board of, I think, eight.

[B]

Okay.

[A]

Who are, you know, you know, various different industry types, some holdovers from the IPO and so forth. So you'd think that they would have some degree of professional pride. And this is a point that Matt Levine made last week, Right. Because he also. He also focused on this a little bit. But I want to go a little deeper than. Than he was able to do. You know, is there some sort of level of shame that these independent directors are society just going to feel for

[B]

how badly the company is performing and.

[A]

Exactly. And the problem is, is if any of these directors, you know, read over the ironic materials, and there's another fund called Randian Capital that has started echo it, and they've started to write a bunch of lines.

[B]

They've started jumping, okay.

[A]

And I know Randy, and they're also very skilled at this. And so they're together with Irene. They're trying to put a lot of pressure here, okay. If they were to start to put pressure on the independent directors, and these independent directors were able to say, you know, yeah, this is embarrassing. I think those independent directors have only one choice, is to quit.

[B]

I mean. Yeah, I mean, they might. Yeah. I mean, they could get. See if they could pressure Spiegel, I guess.

[A]

Yeah, but what's Spiegel gonna do? Spiegel's gonna hold a meeting and find new directors who are gonna.

[B]

I mean, look, I mean, that's the thing, right? I mean, it depends on, like, whether they. Whether they have Spiegel's ear, I guess.

[A]

Right. Or the question is, what's the, what's the threshold of shame for Spiegel and Murphy? You know, how susceptible are they to this kind of public pressure, to this kind of image and so forth? Now, you know, part of the problem is Spiegel's a young guy. Spiegel's like 35. Spiegel is, on the one hand, a lot of money. So, you know, he probably, you know, he might not care about this. Okay. Or he might be waiting for a bid or something. I don't know. On the other, he's got a lot of years ahead of him. And if, you know, if he cares about, you know, his next public company.

[B]

Yeah.

[A]

You know, maybe, maybe he would be sus up.

[B]

I am of the view that people who become that wealthy do not do it by saying, oh, I've got enough. I can retire now. Like, that's rare. Like, like they, they do seem to want. They, they seem to want to maximize value.

[A]

Yeah, yeah, exactly. So, so, so that's the, that's the open question. Is, is, is what's, what are Spiegel and Murphy's pressure points and how, how much do they care about what they look like and how bad this company looks?

[B]

Yeah. And I can say, like. Well, I mean, I'd be curious if you have a view of how often we see activism in controlled companies, because I can think of a couple of other examples. I mean, they're unusual. So, first of all, as we just said in the previous segment, Starboard, for whatever reason, was trying to solicit vote on whether Fox should get rid of its dual class structure, which obviously it couldn't possibly win. But, you know.

[A]

Right. But Fox reacted, you know, didn't react too negatively. You know, there was some, evidently there were some discussions and so forth, and that, that, that pushed some of the dialogue along on that subject. Nothing has changed yet, but evidently Starbird was not unhappy with how that came out with, with how it started to proceed. And, you know, that's like, I mean, that's about as close as we're going to come.

[B]

Well, no, that's.

[A]

To this company, but. Yeah, go ahead.

[B]

Yeah, no, but the, no, but the other one is Peloton, because this is a couple of years ago where Blackwell's agitated at Peloton, which was doing very poorly post Covid, I guess, and they actually got their founder CEO to step down. I mean, basically by saying, look, you got, you're really bad at this. Look at how much the stock Price has dropped. Don't you think you want to like retire and st. Step away and they actually succeeded.

[A]

Yeah. Oh absolutely. And you know, Blackwell's is also, you know, they're uniquely aggressive about this kind of thing. You know, a Renick's case here was pointed but civil. You know, Blackwell's. Blackwell's was. Was willing to kind of go to the mat in some ways really trying to, you know, I suppose there's things. If Horrendock really wanted to force the issue, they could really find stuff to try to embarrass and their presentation is really all focused on the business and advertising, you know, all the kind of the business levers rather than, you know, very little of is focused on. They have one section about how to improve governance and so forth. And you know, let's. Let's give the non voting shares a little.

[B]

Yeah, they have a proposal. I don't know how much they mean it, but they're asking for, among other things, I think they're asking for artificial intelligence because that's what everyone asks for. And they're asking for votes to be given to the public shareholders even as Spiegel and Murphy maintain their control.

[A]

Right, right. So allow them to have control but

[B]

get a sense of shareholders have some kind of voice.

[A]

Right. A little closer to like what Meta has.

[B]

Yeah.

[A]

Which is still, you know, Zuckerberg's controlling

[B]

the votes, but at least shareholders get to talk back. It has to distribute a proxy. Shareholders can put a proposal on the ballot, you know, whatever.

[A]

Right. Well, so you asked an interesting question which is how often does this control companies? And there's a. Not that often because of this very reason is that most of the time, most activists. This is where I really respect but kind of wonder about ironic is that you know, trying to, trying to do this, trying to go after them and you know, spend some money to. And I probably have spent a ton. Yet there's no SEC filings, there's not a lot of lawyers involved. So right now it's just a lot of their own internal research. But most activists, once they see a structure with this degree of control

[B]

are

[A]

reluctant to pursue it for this kind of reason.

[B]

That's what I would have thought. So is Iranic. They're relatively new, is that right?

[A]

Yes. Right. So I wonder two, three years old. Yeah.

[B]

So I wonder if this is like an engine number one thing. Like I want to make a big splash with like some kind of high profile ish thing and you know, succeed or not, now my name's out there.

[A]

Don't don't underestimate that. Again, that's not the main reason that an activist, especially, you know, one of the newer ones or, you know, got found in the past five or six years. It's not the main reason to do this. But sure, you get some attention. You can sort of show the depth of your analysis. And who knows, there's a chance that Spiegel, you know, is finally saying, okay, maybe it's time.

[B]

Yep. Is the market reacted positively to this?

[A]

Oh, exactly. Right. So somebody thinks, I think it was up 20% in the week or like 19% over the week when I checked on, on Friday. So, so there was a sort of positive reaction to this. So we'll sort of see. You know, it could work out. I'm intending, I put it, I put a watch on this. I'm going to sort of, again, snap was nothing that I ever followed, but now I'm kind of curious about, about what's going to happen and whether these founders are, you know, how much they really care about what people think rather than how much control they actually have.

[B]

Right.

[A]

It's a perfect case if in the extreme, given their degree of control, it's a perfect case to kind of illustrate the principle here, which is, again, that's, I think, what Matt Levine was getting at when he wrote it up. So anyway, so we'll kind of follow this one and sort of see what happens. All right.

[B]

Okay, cool.

[A]

All right, let's, let's leave it at that and we can maybe move on to, to something else for the week. All right. And we'll come back next week, too, and talk about some new stuff. All right?

[B]

All right, sounds good.

[A]

This is Shareholder Primacy, hosted by Ann Lipton and me, Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations. Anne is professor of Law and Lawrence W. DeMuth, chair of business Law at the University of Colorado Law School. You can find me, [e-mail] and you can find Ann Lipton at Law Colorado. Edu. Our podcast is primary produced and distributed by Free Float Media. Thanks for listening. Talk again soon.