One Share, One Vote? A Debate on Dual Class Share Structures

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In this year’s Morrison & Foerster Lecture in honor of Marshall L. Small, B.A. ’49, J.D. ’51, Joseph A. Grundfest, David M. Lynn, Robert J. Jackson Jr., and Anne Sheehan discuss:

Dual class share structures typically grant management and pre-IPO investors shares with superior voting rights that give them voting control disproportionate to their equity stake. The most common structure provides for shares that have ten votes for each vote held by public stockholders.

Although these structures are not new, they are increasingly common in tech-sector IPOs. Their prevalence has fueled debate as to whether these structures adequately protect public investors or promote companies’ long-term interests. Many institutional investors call for prohibitions on public listing of dual-class stock. Others want to cause dual-class structures to expire seven years after an IPO. In contrast, the Hong Kong and Singapore stock exchanges long barred dual-class listings, but recently changed course to permit such trading.

Proponents argue that dual class structures encourage founders to go public and give them the freedom and flexibility to execute their long-term vision. Opponents counter that dual class shares insulate founders from the consequences of their own mismanagement, inefficiently create a wedge between ownership and control, and anti-democratically perpetuate minority rule. They also complain that even if dual class shares are rational in a company’s early years, at some point that structure is no longer beneficial. Why should a CEO’s grandchildren have super-voting shares?

Which side has the better of the argument? Watch a distinguished panel of speakers as they debate whether dual class structures should be regulated or banned, and, if so, how.

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