CII's corporate governance policies endorse the principle of "one share, one vote": each share of a public company's common stock should have one vote. CII believes that when a company goes to the capital markets to raise money from the public, public investors are entitled to certain protections and basic rights, including a right to vote that is proportional to the size of the investor's holdings. CII expects newly public companies to respect the "one share, one vote" principle. If companies have already adopted a dual class system, we expect them to phase it out in a timely manner through sunset provisions.
The vast majority of U.S. publicly traded companies embrace this corporate governance best practice. But a significant and growing number of start-up companies are opting for dual-class or multi-class share structures with unequal voting rights. Such companies typically have a superior class of shares with more votes per share than the inferior class with only one vote per share—or, in some cases, no vote at all. Company founders, their families or other insiders typically hold the superior class of shares, giving them majority voting rights even when they hold minority ownership and risk. This concentrates voting power in insiders’ hands, giving them effective control of board-of-director elections and other matters that are put before shareowners for a vote.
Dual-class share structures pose greater risks to investors and make boards and insiders less accountable to shareowners. A recent study found that companies with a dual-class stock structure often do not perform as well as companies with a single class of stock and have more stock-price volatility.