April 24, 2018
Debate is sharpening over the value of dual-class stock, the controversial governance structure that multiplies the voting power of founders and other insiders—often forever—at the expense of ordinary shareholders.
The number of publicly traded U.S. companies with multi-class stock increased 44% from 2005 to 2015, and nearly one in five IPOs now feature the structure, according to a recent report presented to the Securities and Exchange Commission’s Investment Advisory Committee (IAC).
In March, the IAC recommended that the Commission require additional disclosures from dual-class companies. Others want to go further, including one of the SEC’s own Commissioners, who suggested U.S. stock exchanges should only allow dual-class shares that automatically convert to ordinary ones over time.
The issue of continuing to allow companies with “perpetual” dual-class stock to list on U.S. markets may be too ripe for the SEC to ignore, despite Chair Jay Clayton’s insistence in March that revisiting rules on the topic is “not on my list of near-term priorities.”
Since last summer, three major stock index providers have taken steps to remove dual-class companies from their indices or reduce their weighting, potentially leaving legions of index-fund investors without an interest in some of the world’s most important companies.
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