Voices against dual-class shares, which violate the principles of corporate democracy and the precept of “one share one vote,” have increased over time. An influential 50-member Investor Stewardship Group (ISG), overseeing $22 trillion in assets, demands a total elimination of dual-class stock. Council of Institutional Investors (CII), representing managers of $25 trillion assets, recently demanded limiting any company’s dual-class share structure to seven years. Yet this year, Hong Kong and Singapore stock exchanges, which initially barred the listing of dual-class shares, went the opposite way, by allowing their listing.
Should Dual-Class Shares Be Banned?
Should dual-class stock be totally eliminated or, at least, have a mandatory sunset clause? In the authors’ view, while the proposal to ban dual-class shares raises important issues, its implementation would do more harm than good given the challenges from the digital revolution and the growing imperative for established firms to transform their business models. Instead of recommending a total ban on dual-class shares, or even a mandatory sunset clause, they recommend a more flexible shareholding structure. Companies with dual-class structures could be required, after a period of predetermined years, to gain approval from a majority of all shareholders to continue the dual-class structure. Furthermore, single-class firms should be given an option to convert to dual-class shares through a shareholder vote, in order to carry out significant transformations, instead of having to completely delist in order to achieve that goal.