Dual-Class Stock
| CII Resources on Dual-Class Stock: CII's List of Dual-Class CompaniesCII's List of Companies with Time-Based Sunset Approaches to Dual-Class StockCII's Review of Dual-Class IPOs — First Half of 2023Note: For information on the use of CII's company-specific lists for commercial purposes, please email Emmanuel Tamrat. |
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 after 7 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.
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.
CII and Railpen announced June 13 the launch of the Investor Coalition for Equal Votes (ICEV), a new collective investor initiative to push back against unequal voting rights at portfolio companies. The ICEV is a group of global asset owners that may grow over time to include asset managers. Current investor members are Railpen, the Minnesota State Board of Investment, New York City Comptroller’s Office, New York State Common Retirement Fund, Ohio Public Employees Retirement System and the Washington State Investment Board. All are committed to advocating for proportionate shareholder voting, effective stewardship and long-term sustainable company performance. In its first phase, ICEV will engage with pre-IPO companies and their advisors, as well as policymakers, commentators and index providers in priority jurisdictions.