Council of Institutional Investors

Dual-Class Stock

CII Resources on Dual-Class Stock:
Download CII's List of Dual-Class Companies Download CII's List of Companies with Time-Based Sunset Approaches to Dual-Class Stock Download CII's 2017-2020 IPO Statistics Download CII's Snapshot of Dual-Class IPOs from the First Half of 2021 Note: For information on the use of CII's company-specific lists for commercial purposes, please e-mail Lucy Nussbaum.
“One share, one vote” is a bedrock principle of good corporate governance. When a company taps the capital markets to raise money from public investors, those investors should have a right to vote in proportion to the size of their holdings. A single class of common stock with equal voting rights also ensures that the board of directors is accountable to all of the shareholders.
 
While the vast majority of U.S. public companies (approximately nine in 10) have a single class of voting stock, in recent years, a growing proportion of U.S. companies going public have multiple classes of common stock with differential voting rights. Nearly one in four (24%) U.S. companies that went public in the first half of 2021 did so with a dual class structure.
 
Typically, these companies have two classes of common stock: Class A shares with 10 votes per share for the founders (and sometimes insiders, too) and Class B shares with one vote per share for public shareholders. This enables founders to wield control far beyond their equity stake, with little interference from boards they effectively control. Over time, this founder-knows-best approach can entrench management and blindside executives to a need for change in strategy.
 
CII has pressed dual-class IPO companies to include reasonable time-based “sunset” provisions in their charters. We think seven or fewer years post-IPO is sensible. Academic research has found that while dual-class companies tend to have a value premium for a while after making their public debut, that benefit fades to a discount in six to nine years.
 
CII’s campaign for time-based sunsets is gaining ground. In the first half of 2021, 51% of newly public U.S. dual-class companies incorporated time-based sunsets, including ThreadUp (seven years) and Poshmark (10 years). A few years ago, time-based sunsets were rare and frequently extended beyond the first decade of the company’s public life.
 
In the fall of 2021, CII submitted draft federal legislation that would prohibit the U.S. listing of companies with multi-class stock with unequal voting rights absent a sunset provision that takes effect within seven years of IPO, unless shareowners of all classes approved keeping the unequal structure.
Resources
Oct. 6, 2021 Letter commending the Blue Apron board for unwinding its dual-class structure
Oct. 1, 2021 U.S. House panel considers bill curbing dual-class stock
Jan. 22, 2021 Letter objecting to SEC exclusion of shareholder proposals seeking reports on dual-class underwriting 
April 15, 2020 FCLT: Power Play: The Long-Term Impact of Multi-Class Shares
   
Correspondence
Oct. 6, 2021  CII letter to Blue Apron board commending recapitaliation 
Oct. 1, 2021 CII letter to leadership of U.S. House Committee on Financial Services
  Supporting letters:
  Ohio PERS
  CalPERS
  CalSTRS
  Los Angeles County Employees Reitrement Association (LACERA)
  Office of the New York State Comptroller
  Railpen
  Federated Hermes EOS
  Consumer Federation of America
  Public Citizen
  North American Securities Administrators Association
  Healthy Markets Association
Sept. 14, 2021 CII letter to U.K. FCA on dual-class share structures
Nov. 9, 2020 CII letter to Brazilian Securities Commission
Sept. 3, 2020 CII letter to Palantir Technologies
April 23, 2020 CII letter to Hong Kong Stock Exchange